OIL FUNDAMENTAL FORECAST: BEARISH
- FOMC rate decision, Powell commentary may pressure crude oil prices
- If Fed fails to meet market’s dovish expectations, WTI could take a hit
- Could thawing US-Iran relations continue to pressure crude oil prices?
FOMC Rate Decision: Will Powell Disappoint, Exceed, or Meet Market Expectations for Easing?
The scheduled headline risk for next week will be the FOMC rate decision and subsequent commentary from Fed Chairman Jerome Powell. Overnight index swaps are currently pricing in a 99 percent probability of a 25 basis-point cut. However, even if the central bank delivers a rate cut, it may not satiate investors’ growing need for liquidity against the backdrop of eroding fundamentals.
Mr. Powell has repeatedly stated that the Fed is using a data-dependent approach to policy and will adjust interest rates “in accordance to the prevailing economic circumstances that fall under the purview of its mandate”. However, market participants have become overly enthusiastic about prospective easing. The sobering reality that rate cuts may not come as quickly as expected may dent crude oil prices.
US-China Trade War: Interim Deal Ahead?
US President Donald Trump recently announced that he would consider implementing an interim trade deal with China after he delayed a tariff hike two weeks back from the original October 1 deadline. People familiar with the matter said Mr. Trump is even considering rolling back some of the tariffs in exchange for China agreeing to meet some benchmarks on intellectual property rights and agricultural purchases.
If relations continue to improve, it could provide a brief moment of respite to markets and temporarily lift crude oil prices. However, the underlying growth narrative remains unnerving as central banks all over the world continue to cut interest rates and implement unorthodox policy measures. It is also possible Mr. Trump may send out a random tweet on trade and potentially throw markets into turmoil.
Iran-US Tensions May Ease, Pressure Crude Oil Prices
After the President fired National Security Advisor John Bolton and said he is considering easing sanctions against Iran, crude oil prices dropped over two percent. This move reduced some of the concerns about politically-induced supply disruptions fears. If US-Iran relations show more signs of thawing, it could continue to pressure crude oil prices in addition to the other factors in the week ahead.
Crude Oil Prices Drop After Trump Considers Easing Iran Sanctions
OIL TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter