WTI crude oil futures rose above $86 per barrel today. The series of rises extended to four sessions in a row, with prices reaching their highest levels in seven years. The explosion of a key pipeline running from Iraq to Turkey may have contributed to this.
The explosion may have reduced the supply of crude in a market that was already under the influence of dwindling reserves. Stocks were declining due to outages and production shortages in OPEC+ member countries, but also due to rising geopolitical tensions. These events have coincided with a recovery in fuel demand.
OPEC expects oil demand to pick up. Rising energy and commodity prices, however, pose challenges for consumer countries and central banks as they seek to prevent inflation while supporting global growth. In the U.S., this has prompted rulers to closely monitor prices and negotiate with OPEC+ countries if necessary.
European Central Bank closer to a rate hike?
Germany's 10-year bond yield rose above 0 percent for the first time since May 2019. Indeed, high inflation in the Eurozone may have raised expectations for faster monetary tightening by the European Central Bank this year.
Markets have factored in a 10 basis point rate hike by the ECB in September and are assuming a second rate hike by December this year. The Eurozone central bank has already announced plans to end emergency bond purchases in March, thanks to the economy recovering from the COVID-19 pandemic.
The U.S. Federal Reserve, on the other hand, is expected to raise interest rates as early as March and three more times by the end of the year, according to federal funds rate futures pricing.
Thus, the era of negative yields in the eurozone may be history, as well as an era of unprecedented support from central banks.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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