Oil prices rose to a one-week high on Monday, extending Friday's gains amid signs of reduced supply in the US due to Hurricane Ida. About three-quarters of Gulf of Mexico oil production, or about 1.4 million barrels a day, has been taken off the market since late August.
At the same time, hopes for an increase in demand intensified after President Joe Biden announced a growth in COVID-19 vaccinations in the U.S. News of the U.S. president's phone call with Xi Jinping also seemed to ease concerns about Sino-U.S. tensions. Meanwhile, investors may still be wondering whether China's intervention to tap its giant oil reserves for the first time ever, after the country's inflation rose to its highest level in 13 years in August, will be a one-off or have long-lasting effects. Market attention this week appears to be focused on potential revisions to 2022 oil demand forecasts from OPEC and the EIA. By Monday morning, a barrel of WTI crude was settling in the $70 region.
Meanwhile, U.S. index futures rose slightly in the stock market on Monday amid optimism in U.S.-China relations following the aforementioned Thursday phone call between the U.S. president and the Chinese prime minister. It was aimed at managing competition between their countries. It seems that investors are now waiting for CPI inflation data to be released on Tuesday and retail sales on Thursday. The market consensus is for US prices to rise by 5.3 percent in August, while core inflation was expected to rise by 4.2 percent. Thus, the US may continue to reside in an environment of negative real interest rates, which may in turn maintain demand for risky assets.
In the foreign exchange market, on the other hand, the dollar index was trading in the region of 92.6 points on Monday, as it seems in the face of risk aversion, as an increase in COVID-19 cases was observed in vaccinated countries such as the UK and Singapore. Meanwhile, CNN reported that the Biden administration is expected to announce new coronavirus-related measures for incoming travelers before the next UN General Assembly meeting. In the latest data, U.S. producer inflation rose 0.7 percent in August, above expectations of 0.6 percent, leading to the biggest annual increase in nearly 11 years. Higher producer inflation could translate into higher consumer inflation, which we will learn this week, and this could accelerate Federal Reserve action. As a result, EUR/USD appears to have slipped below the 1.1800 level and is at its lowest since late August.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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