It seemed that the price of oil might stabilize due to OPEC+ increasing production and balancing demand with supply. However, we are again seeing increases. What could be causing them this time?
The price of WTI crude oil rose more than 1 percent to around $75 per barrel, notching its highest level since mid-July. This came after five days of gains last week, when the increases seemed to be spurred by rising fuel demand and shrinking U.S. crude inventories. Production disruptions on the U.S. Gulf Coast due to Hurricane Ida and other storms have led to a sharp drop in crude reserves not only in the U.S., but almost around the world.
China facing the threat of a slowdown
EIA data showed that U.S. crude inventories fell by 3.5 million barrels last week to 414 million. They were also the lowest since October 2018. Meanwhile, India's oil imports rose in August to their highest level in three months, rebounding from July's annual low. China publicly sold state oil reserves for the first time.
Speaking of China, debt-laden Evergrande remains a risk to oil prices, as its electric car unit has warned that it faces an uncertain future if it doesn't get a quick cash injection. All of this could be the seeds of a potential energy crisis, Bloomberg reported today, which could ultimately lead to a significant slowdown in the Chinese economy.
Daily chart of Brent crude oil CFDs. Conotoxia cTrader platform
Stock exchanges do not see the risks
On Monday morning, the quotes of contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq seem to have risen by almost 0.5 percent.
This week, investors' attention may be focused on US fiscal policy. That's because the House of Representatives will vote on a $1 trillion infrastructure bill, while a Sept. 30 deadline to fund federal agencies could force a second partial government shutdown in three years. The House has already passed a bill that would keep the government funded through early December and suspend the debt limit through 2022, but the legislation could face a rough battle in the Senate.
Federal Reserve Chairman Jerome Powell will testify before the U.S. Senate on issues including the impact of the epidemic on the economy and the CARES Act. There will also be a two-day European Central Bank forum on central banking, which investors will be watching closely for more clues on the outlook for monetary policy.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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