Central Bank and OPEC Decisions
Oil prices are on the rise as investors look towards a meeting of OPEC and its allies,
as well as a Federal Reserve rate decision and U.S. government data on crude and fuel stockpiles being released Wednesday.
Topics
OPEC Production Cuts
Crude Oil
Global Commodities Market
OPEC Production Cuts
The Organization of the Petroleum Exporting Countries (OPEC) is expected
to discuss when it will start easing production cuts that have been in place
since 2017 to prop up oil prices amid oversupply concerns.
The group’s members, along with non-members such as Russia,
have agreed to cut their output by 1 million barrels per day (bpd),
but some analysts expect that number could be further reduced at this week’s meeting in Vienna
if demand remains weak due to coronavirus lockdowns around the world.
Meanwhile, traders are also keeping an eye on what direction of interest rates
may take following tomorrow’s Federal Open Market Committee policy statement
from the central bank after its two-day meeting ends Wednesday afternoon U.S. Eastern time.
A lower benchmark rate could help boost consumer spending
which would increase demand for energy products like gasoline and diesel fuel,
both important components of oil pricing models used by producers worldwide.
Finally, weekly data from American Petroleum Institute (API)
will give market participants insight into how much crude is stored across United States commercial facilities
while figures from the Energy Information Administration (EIA)
will show changes in supplies held at Cushing Oklahoma the delivery point for the US benchmark
West Texas Intermediate futures contracts traded on the NYMEX division of the CME Group exchange.
Overall, these three major events should provide investors with ample opportunity
for profit-making or risk management ahead before markets close out the week.
Crude Oil
As the markets prepare for key decisions from both the Federal Reserve and OPEC this week,
oil prices have ticked up.
Brent crude futures have risen 45 cents, or 0.5%, to $85.91 a barrel at 1215 GMT
while West Texas Intermediate (WTI) U.S. crude futures rose 62 cents, or 0.8%, to $79.49 a barrel
as of Monday morning trading in Europe according to Reuters data.
Investors are closely watching for news from two major events that could affect global oil supply and demand: The Fed’s interest rate decision on Wednesday and an OPEC meeting on Thursday where members will decide whether they should cut production further to bolster prices amid rising U .S shale output which is cutting into their market share worldwide.
The Organization of Petroleum Exporting Countries (OPEC) is currently producing around 32 million barrels per day but has been considering reducing its output by 1 million bpd since May when it met with Russia-led non-OPEC producers who agreed earlier this year to reduce supplies by 1 million bpd as well.
Analysts predict that if both sides agree upon deeper cuts, then it could push up Brent Crude above $90 per barrel while WTI might reach near the psychological barrier of the $90 mark before the end of 2023.
In addition, investors are expecting clues about future monetary policy moves from The Federal Open Market Committee’s meeting later this week which may provide some direction regarding economic growth prospects going forward.
Overall, these two meetings will be crucial determinants for global energy markets so traders should keep a close watch on any developments coming out over the next few days!
Global Commodities Market
The global commodities market has been in a state of flux lately, with WTI crude oil trading in contango and Brent crude oil trading in backwardation. This indicates that there is an oversupply of WTI currently, as front-month delivery contracts are trading higher than later deliveries.
On the other hand, Brent is experiencing a shallow backwardation – meaning that current demand for this type of crude exceeds supply.
What does this mean for traders? With both types of crudes exhibiting different market structures at the same time, it’s important to understand what each structure implies about current supply and demand dynamics within their respective markets.
Contango suggests an excess amount of inventory or production capacity relative to immediate consumption needs; while backwardation reflects tightness between near-term supplies and demands due to unanticipated events like geopolitical disruptions or natural disasters which can cause short-term spikes in prices even if long-term fundamentals remain unchanged.
Traders should also pay attention to spread relationships between these two benchmarks when making decisions on whether they want exposure to one over the other – especially since these spreads often move independently from spot price movements due largely because they reflect differences not only on physical characteristics but also contractual terms associated with each grade (i.e., quality).
For example, if you see WTI’s contango widening versus Brent’s narrowing then it may be indicative that refiners have more access/options when looking for alternative sources outside North America where most US grades originate from thus providing them leverage during negotiations (which could lead them paying lower premiums).
Overall understanding how changes within commodity markets affect your strategies will help you make better-informed decisions so keep track of any shifts taking place now such as those seen recently concerning WTI &Brent Crude Oil!