Month: September 2023

The current trend suggests we could see prices soar beyond $100 per barrel soon.

In recent months, oil prices have surged. Let’s delve into the reasons:

1. Most notably in my view, the US began replenishing its strategic reserves during this period, leveraging them to capture additional European markets.
2. The summer marked a record global oil consumption: the transition to green energy, paradoxically, seems to be boosting the demand for ‘black gold’.
3. The cartel agreement of OPEC+ means that the world’s leading producers continue to maintain a product deficit in the market, with no visible end in sight.
4. Inflationary pressures are evident in the oil sector as well: this includes costs related to equipment, salaries, logistics, and infrastructure.

At the beginning of the year, I forecasted oil prices to reach $100 by year’s end. However, it seems this might occur sooner. We could witness these rates within weeks, and beyond that, the figures are unpredictable – perhaps even $120 or $150 per barrel, given the current trend.

Factors Potentially Limiting Oil Price Growth:

1. A sharp market downturn.
2. A global economic recession, which would slow down oil consumption.
3. Agreements between the US and OPEC+.

While I believe the first two events are quite plausible within the next year, I’m skeptical about the third occurrence taking place in the upcoming 2-3 years.

The rationale is straightforward: why would countries like Saudi Arabia and Russia produce more for less profit when they could reduce infrastructure investments and earn more? Thus, trade wars persist.

Wishing everyone a successful day!

“To mitigate inflation, we might witness an economic downturn, market strain, and employment stress.” – Andrey Syrchin, CEO of Cresco Capital

Greetings,

This week brought about significant insights that I wish to share, accompanied by several conclusions:

1. The interest rate remained unchanged, standing at 5.25-5.5%.
2. The possibility of a rate hike this year is still on the table, especially if inflation doesn’t stabilize. This could potentially see rates surpassing 6%.
3. Pertinently, addressing inflation might necessitate an economic downturn, market turbulence, and employment challenges, hinting at potential unemployment and recession scenarios.
4. There remains significant uncertainty surrounding inflation indicators, the real estate market, and overall economic growth.
5. A rate reduction seems unlikely in the near future, not before the end of 2024 as per the regulator’s stance.

The Chairman’s statement provoked substantial reflection on the ongoing market situation.

Observations:

1. The market is expected to endure strict monetary policies, with expensive capital being the norm. While this is the anticipated trajectory, I have reservations. If, for instance, the market plunges by 30-40%, I believe prompt and decisive action would be necessitated. Historically, the Federal Reserve has often been late in making pivotal decisions, leading to significant market downturns, inflation spikes, and other challenges.
2. Until the Federal Reserve is confident that inflation is below 2%, no major interventions will be made. As the Chairman emphasized, a crisis and rising unemployment might be prerequisites to curb inflation. It’s challenging to quantify the current buffer in the US business sector, especially with the excess liquidity provided by high inflation and stimuli. The effects of high rates have not fully permeated the markets, yet already this year, over 90 bankruptcies and bond defaults have been observed in the US, a number that typically stands around 50 at this juncture.

In summary, this encapsulates my reflections on the Federal Reserve’s meeting. As we move forward, I advise exercising caution, emphasizing speculation over long-term investment.

Wishing everyone success.