WEEKLY ENERGY RECAP: Oil prices feel the pressure

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Updated 26 July 2020

WEEKLY ENERGY RECAP: Oil prices feel the pressure

  • ‘The only thing that can support a balanced market is a pickup in demand’

Oil prices moved with considerable momentum at the start of the week, touching four-month highs. But by the end of the week Brent crude had settled at $43.34 per barrel. WTI also edged up to $41.34 per barrel. 

Energy Information Administration data showed weakening gasoline demand after a surge in the number of coronavirus cases. The outlook for crude oil demand in the US turned bearish as the latest weak US jobs report fueled growing economic uncertainty.

While that was enough to trigger a sharp sell-off in equities, oil prices remained stable.

The US dollar slid to 22-month lows which would normally be accompanied by a rise in the inversely-priced crude oil. 

A weaker greenback usually spurs buying of commodities priced in dollars, especially oil, because they become cheaper for holders of other currencies.

But that didn’t happen this time and prices remained tethered to the narrow band where they have been for more than two months.

Another major macro-economic theme in the shape of the escalating US-China trade war was also shrugged off by the market. 

Refinery throughput also turned south suggesting that US oil demand is plateauing amid rising COVID-19 cases.

The number of long positions on the NYMEX WTI futures exchange fell by 6,205 contracts, compared with the previous week. It appears that speculators are staying away from the flat structure of current oil prices.

So as July closes out, oil prices remain trapped between the downside and upside pressures of the coronavirus and the recovery.

The only thing that can support a balanced market going forward is a pickup in demand and that will eventually happen.

But the shape and form of that pickup remains unpredictable.


Turkey on brink of recession as economy collapses

Updated 13 August 2020

Turkey on brink of recession as economy collapses

  • Consumer debt has increased by 25 percent to more than $100 billion in the past three months

JEDDAH: President Recep Tayyip Erdogan’s popularity is plunging in lockstep with Turkey’s collapsing economy and the country is on the verge of a potentially devastating recession, financial experts have told Arab News.
The value of the Turkish lira has fallen to 7.30 against the US dollar and the central bank has spent $65 billion to prop up the currency, according to the US investment bank Goldman Sachs.
Consumer debt has increased by 25 percent to more than $100 billion in the past three months as the government moved to help families during the coronavirus pandemic, but the result has been a surge in inflation to 12 percent.
With the falling lira and increased price of imported goods, the living standards of many Turks who earn in lira but have dollar debts have fallen sharply.
The economy is expected to shrink by about 4 percent this year. The official unemployment rate remains at 12.8 percent because layoffs are banned, although many experts say the real figures are far higher.
To complete the perfect storm, tourism revenues and exports have been decimated by the pandemic, and foreign capital has fled amid fears over economic trends and the independence of the central bank.
Wolfango Piccoli, of Teneo Intelligence in London, said logic dictated an increase in interest rates but “this is unlikely to happen.”
Piccoli said central bank officials would strive to avoid an outright rate hike at their monetary policy meeting on Aug. 20. “A mix of controlled devaluation and backdoor policies, such as limiting Turkish lira’s liquidity, remains their preferred approach,” he said.
There is speculation of snap elections, and Erdogan’s view is that higher interest rates cause inflation, despite considerable economic evidence to the contrary.