Oil awaits Fed decision

31 July, 2019

The Oil price was trading lower again yesterday on Monday, weighed down by worries about the current state of economic growth, and some major decisions coming up this week are likely to dictate the price in the nearest future.

The decision by the US and China to resume trade talks is seen as a boost for oil as it may be a cause for increased demand but with the debarkle surrounding Brxit as well as the dire situation in Europe, the world economy overall may be trump any progress in trade talks.

“I think geopolitics is a key driver but I think what’s in the driver’s seat right now is the concerns around global demand,” said  Virendra Chauhan, an oil analyst at Energy Aspects,

“OPEC’s supplies are down by 2 million barrels per day. That’s the steepest level in a decade. And yet, oil has gone nowhere in the past month.” He added.

The latest interest rate decision from the US Federal Reserve on Wednesday is also shaping up as important for the oil price depending on how much the Fed cut rates.

If there is a 50 point basis cut which is twice as much than earlier predicted then the price may rise as the dollar sinks and the commodity becomes cheaper for holders of other currencies.

So-called dovish monetary policy in the United States, where the central bank reduces interest rates, would “support a continuation in global expansionary activities and fuel demand growth” for the second half of 2019, said Benjamin Lu, an analyst at Phillip Futures in Singapore.

“If the Fed is a little more dovish and prices in a 75 basis points cut we might see oil pushing up towards $60,” Lu said

Still, “demand side concerns are the shadow over oil prices,” he added.

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