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Oil Prices Recover Amidst Market Volatility and Recession Concerns
Between the cut in oil production and the significant increases in energy prices, the oil industry has taken huge hits in the past three weeks. Last Week’s losses were above 5%, but this week, the market shows signs of recovering.
It all started when the OPEC members complained that they were targeting a market price of $80 per barrel. This explains the significant daily oil product consumption, by 250.000 daily, on the last cut.
Oil prices significantly rose by about 3% on Wednesday, making up for the losses they had sustained the day before. This increase was mostly caused by a significant drop in U.S crude stocks that was seen over the week. The market’s increase was relatively muted, though, as a result of ongoing worries about interest rates. Recently, the world’s central banks made a commitment to step up their efforts to fight inflation, which alarmed investors. As a result, the price of West Texas Intermediate (WTI) crude oil traded on the New York exchange increased by 2.28% to reach $69.21 a barrel at 15:30 ET. WTI briefly reached $69.70 during the day at its highest point. WTI, on the other hand, had dropped by 2.4% on Tuesday.
Brent oil prices were up by 1.9% at the same time, recovering their Tuesday 2% losses to reach a market price estimated at $73.9 a barrel.
A rally in oil prices does not necessarily mean it’s a good thing, according to John Kilduff, partner at New York energy hedge fund Again Capital. John says that a rally will only encourage Monterey policymakers to take matters into their own hands.
In simple language, there will be more interest rate hikes this year—at least two or three. With those hikes, the market demand for oil will increase, as will its prices. This, in turn, will encourage inflation.
Meanwhile, the Treasury yield curves show dangerous signs, and experts believe that it’s too early to assume that a bull market will protect the U.S. stock market. There is a chance of an oncoming recession given the present occurrence of yield curve inversions. Time and credit arbitrage are practices used by banks to increase profits. The lending rules have been tightened as a result of a proxy used to gauge loan profitability being at its lowest level in 25 years. By limiting access to credit, this restriction may have further effects on economic activity. Even if the pandemic-related stimulus measures give the current scenario a unique twist, it’s vital to remember that the underlying economic indicators still suggest the possibility of a recession. Collectively, these elements support a circumspect examination of the economic environment.
Moving to the bond market gains and losses for today’s session treasury yields posted 1.2% declines. The U.S. 10-year Treasury yield declined by 1.52% to 3.712. The fixed 30-year bonds slipped by 1.24, the 5-year indexes were down by 1.12%, and the 3-month bond indexes declined by 0.19.
As for the stock market, The S&P 500 benchmark edged lower by 0.37%, the Nasdaq was up by 0.11%, and the Dow was down by 0.37%.
