It seems that one of the main factors of inflation growth in the world is starting to slow down its upward trend. We are talking about crude oil. Is this the beginning of a more serious price correction?
WTI crude oil futures fell below $81 per barrel on Friday, approaching their third straight week of price declines.
Will demand for oil fall?
The declines come amid an inflationary rally in the dollar and in anticipation of further US action to curb high oil prices, including the release of more emergency crude reserves.
There has also been a weaker oil demand outlook for the year, with a renewed rise in COVID-19 cases in some countries also weighing on the deteriorating outlook.
OPEC set expectations in its monthly report that oil demand would average 99.49 million barrels per day in Q4 this year. A month ago, the forecast was higher - about 99.82 million barrels per day. The decline may be due to higher energy prices taking a toll on demand.
The same report also cited higher energy costs as a factor in the slowing global economic recovery and lower demand from China and India, which recent inflation data show is affecting various sectors of the economy.
Correction and announcement of stabilization
The price of a barrel of WTI has risen more than 65 percent since the beginning of the year, and at its peak in late October this year it was nearly $85, the highest since 2014. In the last month, a 4 percent correction has emerged. This, in turn, may begin to impact inflation expectations and stabilize them towards the end of the year, as well as the prices of other energy commodities in global markets.
From the perspective of the past week, it is quite clear how investors may have been spooked by inflation and how it could negatively impact consumption and the economy.
A week of the dollar, gold and silver
On the week, silver gained strongly, above $25 per ounce, rising about 4 percent, while gold rose about 2.2 percent. Stock index futures fell. Futures on the S&P 500 appear to have dropped nearly 0.8 percent this week, to 4660 points, while technology Nasdaq lost more than 1.7 percent, falling to 16,000 points.
The US dollar seems to be the undisputed ruler on the currency market, with the USD index rising by nearly 0.9% and the EUR/USD exchange rate breaking the level of 1.1500. The Australian dollar seems to be losing the most to the USD, falling by around 1.23%. The AUD/USD exchange rate was at 0.7300, its lowest level in a month.
The market waits for news on interest rate changes
The likelihood of a US interest rate hike as early as mid-2022 is increasing, with another hike in December 2022. Meanwhile, barely a week ago, the market was cautiously pricing in just one hike, according to Fed interest rate contracts. This, in turn, could mean that the entire weight of expectations now rests on the shoulders of the FOMC and the Federal Reserve chief, and communication on monetary tightening in the coming weeks could influence investor sentiment.
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