On the commodities market, it's impossible to take the eyes off what's happening to the price of oil, where a barrel of WTI beat the $62 level today. Since the beginning of the year, the price of this type of oil has increased by almost 27 percent, and by almost 18 percent in February alone.
Thursday's increases seem to be consecutive and in total, the price of a barrel of WTI is pushing up for the fifth session. It seems that the price rise may have also accelerated due to a larger-than-estimated drop in US crude inventories. API data showed on Wednesday that U.S. crude inventories fell by 5.8 million barrels in the week ended Feb. 12, after falling by 5.4 million barrels a week earlier, compared with market expectations for a 2.2 million barrel decline. Production disruptions in the U.S. due to deep frost proved more severe than initially expected, with oil producers and refineries in Texas remaining shut for a fifth straight day and the governor banning natural gas exports from the state. According to Wood Mackenzie, oil production in Texas has been halted at about 1 million barrels per day and it could be weeks before it is fully restored. Investors are now awaiting the U.S. EIA's weekly inventory reports, which will be released on Thursday.
Meanwhile, the minutes of the latest Fed meeting were released on Wednesday evening. And so, at the first meeting of 2021, FOMC members expected that it would be appropriate to maintain the target range for the federal funds rate at 0 to 0.25 percent and asset purchases at current levels until labor market conditions reach a level consistent with the Committee's assessment of maximum employment and inflation rises to 2 percent and remains moderately above 2 percent for some time. The Federal Reserve sees that the economy is far from reaching the Committee's target of maximum employment and that, even with the rapid pace of improvement in the labor market, it will take some time to reach that target. Inflation is expected to rise, following a trajectory consistent with achieving the Fed's goals, supported by stronger economic activity, widespread vaccination and associated reduction in the social gap, and accommodative fiscal and monetary policies, as per the minutes.
The markets seemed not to react much to the above, as it still does not specify even an approximate date for the possibility of reducing the QE program, i.e. the pace at which the Fed's balance sheet is increasing. It seems that this is the key issue for the markets at the moment, and only by determining this framework could capital start to turn away from risky assets. Until then, investors may still look for investment opportunities in the stock market, commodities or cryptocurrencies. It also seems that in the initial stage, the increase in bond yields does not discourage risk-taking, on the contrary. For the capital from the bond market bubble and potentially realized profits, further assets could be purchased. Only in the further part of the cycle and when bond prices fall more sharply, investors would be able to return to them at more attractive prices.
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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