The price of crude oil has remained at the highest level since the beginning of March, gaining about 1% this week. This is the second consecutive week of oil price increases and mixed information on demand and supply.
Concerns about excessive oil supply have been alleviated this week by data from the United States. They showed that stocks of oil and gasoline have shrunk due to higher demand for fuels. This was an upward price factor. However, it was quickly offset by information on oil demand forecasts.
For the first time in several months, the IEA reported that oil demand will fall in 2020. The report shows that global oil demand fell by 16.4 million barrels per day in the second quarter of this year as restrictions were introduced to combat the COVID-19 pandemic. In May, demand rebounded strongly in China and India, increasing by 0.7 million b/d and 1.1 million b/d per month respectively. Global oil demand is expected to decrease by 7.9 million b/d in 2020 and increase by 5.3 million b/d in 2021. The recent increase in the number of COVID-19 cases and the return of restrictions introduce greater uncertainty to this forecast. Now it seems that next week's OPEC meeting may be crucial in this matter, although Russian representatives say they do not expect the decision to reduce production.
Meanwhile, on the foreign exchange market, attention is once again being turned by events concerning the Turkish lira. For the first time in history, the USD/TRY exchange rate exceeded 7.37 TRY. This happened after the publication of data on industrial production in Turkey. It increased only by 0.1% in June, i.e. below the 1.1% target. Also, the current account deficit was higher than expected.
Investors are still worried about the Turkish state's ability to support the lira. Gross foreign exchange reserves of the central bank fell last week to the lowest level in over 14 years. The Turkish central bank has a huge problem as it has to avoid raising interest rates in the context of the sudden economic recession caused by the coronavirus pandemic. This year alone, the lira lost almost 20% against the dollar.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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