Industry News
Under the influence of various factors, short-term crude oil will maintain strong volatility
Due to the existence of the US dollar pricing system, commodities are closely related to the trend of the US dollar. The trend of international oil prices denominated in US dollars is usually negatively correlated with the trend of the US dollar, but recently there has been another phenomenon of both rising together.
Industry insiders believe that factors such as the relative weakness of the euro have supported the recent strengthening of the US dollar, while crude oil prices have continued to strengthen due to reduced supply and declining inventory. Against the backdrop of continuous tightening of the Federal Reserve's monetary policy and a reduction in crude oil supply, there is still support below the US dollar and crude oil prices, and it is expected to maintain strong volatility in the short term.
The US dollar and crude oil rose together
Recently, the US dollar and crude oil have once again seen a simultaneous rise. On the one hand, the US dollar index has risen for nine consecutive weeks on a weekly basis, setting a record for the longest consecutive rise since 2005. On the other hand, since July 1st, the international benchmark Brent crude oil price has risen by approximately 26%.
From historical data, the US dollar index usually shows a negative correlation with global manufacturing PMI, global trade volume, etc. The reason is that a strong US dollar often means that US monetary policy is in a tightening cycle, and market expectations for global economic prosperity are weak. Liquidity flows back to the US and suppresses the growth of total demand. For commodities, except for the demand side changes implied by the fluctuations in the US dollar index, the vast majority of varieties themselves Pricing in US dollars, the impact of an increase in the US dollar index on its price is also more direct, with a clear negative correlation Shen Chen, a senior researcher at the Galaxy Futures Financial Derivatives Research Institute, told reporters that the recent trend of the US dollar index and crude oil prices more reflects the disturbances caused by supply side factors than demand side factors.
The recent increase in crude oil prices is mainly driven by the supply side. Saudi Arabia and Russia are continuously extending the period of production reduction, while Libya is facing extreme weather caused by hurricanes, and crude oil production may be damaged. Supply side tightening is driving prices higher, "Liu Shunchang, an analyst at Nanhua Futures Energy and Chemical, told reporters. With major oil producing countries actively compressing oil production, commercial inventories of crude oil continue to decline, which also drives up oil prices.
Due to the fact that the maximum weight of the US dollar index is the euro, the comparison of economic growth between the United States and Europe has a significant impact on the trend of the US dollar. Industry insiders believe that behind the rise of the US dollar index this round, it is influenced by the weak European economy and the continued interest rate hikes by the Federal Reserve.
Currently, the macroeconomic data of the US economy is better than that of Europe, and the European economic locomotive, Germany, faces huge challenges in economic growth. In August, Germany's manufacturing PMI fell to 39.1, increasing the pressure of recession, "Liu Shunchang said.
Both face strong support
Looking ahead to the future, will the strong pattern of the US dollar continue?
Shen Chen believes that compared to recent PMI and other data, non US developed economies such as the EU and the UK seem to face greater challenges, with an increasing risk of economic recession. In this situation, the US dollar index will still receive some support.
How will the strong US dollar affect the commodity market?
The continuous rise of the US dollar is bearish for commodities priced in the US dollar, "Liu Shunchang said. Overall, commodity prices are mainly influenced by their own fundamental supply and demand, and different pricing currencies can lead to different states of commodities.
In terms of crude oil trends, Liu Shunchang believes that crude oil prices are still supported by supply side production cuts, and is expected to remain relatively strong, but the upper space is limited. The strengthening of oil prices may drive inflation to rebound beyond expectations, causing a negative impact on the overall macro environment and crude oil demand. It is expected that the strong resistance above oil distribution will be $100 per barrel
On September 5th, Saudi Arabia announced its plan to maintain a voluntary production reduction of 1 million barrels per day in the fourth quarter. Other oil producing countries have limited supply growth, and the total supply is expected to increase within 500000 barrels per day month on month. Without considering the US economic recession and extreme weather, it is expected that the crude oil supply and demand gap in the fourth quarter will narrow compared to the third quarter, but it will still maintain a destocking level of over 1 million barrels per day. Therefore, oil prices are expected to remain volatile and strong, "Shen Chen said.
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