A surge in new Covid-19 cases around the world is raising concerns about the state of the economy over the winter season. Demand for oil could wane. Moreover, the U.S. is heading for a confrontation with OPEC over the supply of the commodity.
WTI crude oil futures fell below $77 a barrel on Thursday, posting losses of about 5 percent over the past few days. This came after reports that the U.S. is asking other major oil consumers such as China, India, Japan and South Korea to consider a coordinated release of oil reserves to lower prices.
China's State Reserve Bureau has, moreover, confirmed that it is working to release oil reserves, but declined to comment on whether it is doing so at the request of the US. Japanese and South Korean officials confirmed receiving such a request, but said they could not use the release of reserves to lower prices. Thus, no agreement could be reached on a coordinated release of strategic stocks. OPEC and the International Energy Agency continue to warn of a potential oil surplus in the coming months and urge caution when it comes to increasing production and supply.
Dollar halts good run
The US Dollar Index fell slightly on Thursday and thus the EUR/USD seems to be defending the 1.1300 level. Mixed data from the US real estate market failed to push the Dollar higher as recent retail sales data and high inflation did.
The dollar was able to lose value today mainly against the British pound and the Japanese yen. The British currency gained after the release of UK inflation data. It increased at the fastest pace in over a decade. The yen, on the other hand, seemed to benefit from a shift towards safe haven assets amid a global rise in uncertainty.
The outlook for the dollar is mixed, with some seeing the recent decline as a buying opportunity, while others argue that expectations of a hawkish move by the Federal Reserve are already priced in. Additional uncertainty may be brought by the wait for President Joe Biden's decision on who will become Fed chief. Will it be Jerome Powell, or will Lael Brainard, who seems to have an even more dovish stance on monetary policy, take over the job?
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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