Mounting recession worries are currently trumping how tight the physical crude market remains. Crude prices tumbled after countless warnings from corporate America and after consumer confidence tumbled to the lowest levels since February 2021. It seems some of the earnings optimism we had early is quickly fading and everyone is focusing on how hard of a recession will the economy have and what will that do to the crude demand outlook.
Congo is expected to be auctioning off lots of oil and gas blocks that could threaten endangered gorilla habitats, which might lead to some resistance to participate. The oil market will remain tight as we will not see any immediate new sources of output. Even as oil giants reap in record profits, they will hesitate to invest significantly in new oil wells.
Many energy traders are focusing on the widening difference in prices between WTI and Brent crude. Russia’s handling of energy to Europe will likely lead to shortages that should keep that premium wide.
Gold eyes FOMC rate decision
Gold prices are consolidating ahead of another pivotal FOMC decision. This is the moment for gold that will break the precious metal’s back or offer hope that peak tightening has been priced in. Investors are growing optimistic that the economic slowdown will contribute to a quicker decline with pricing pressures, which suggests the Fed’s tightening job might be done by the end of the year. The Fed won’t lock themselves into any strong stances on the trajectory of future rate hikes, but it seems they won’t be in a position to say even more aggressive rate hikes are on the table. A 75 basis-point rate increase seems like a done deal for tomorrow and gold could continue to stabilize above the $1700 level as long Powell does not signal a 75 basis point increase could happen again in September.