Oil Prices Soften on Short-term Demand Concerns ahead of US inflation data

[Gyan Dev]

The Asian forex market saw a slight dip on Monday as the dollar reached its near one-month high, as the market prepares for the looming threat of US inflation.

It is not surprising that the dollar has gained traction in the market, as it remains one of the most stable and sought-after currencies in times of economic uncertainty. The anticipation of inflation, however, has caused some jitters in the market. Inflation, if not managed properly, has the potential to disrupt the delicate balance of a country's economy and can lead to currency devaluation.

Investors are closely monitoring the situation, as inflation can lead to higher interest rates, which in turn can impact the returns on investments. This is why the dollar, which is historically seen as a safe haven currency, is gaining ground in the market.

Despite the slight dip, it is important to note that the Asian forex market is still holding strong, with many of its currencies, such as the Japanese yen and the South Korean won, continuing to perform well.

Oil prices take a dip on Monday morning

Oil prices took a dip on Monday, after experiencing a surge of 2% the previous day. Investors were wary of short-term demand concerns in the lead-up to crucial U.S. inflation data and the ongoing refinery maintenance in Asia and the United States.

Brent crude futures saw a 74-cent drop, equating to a 0.9% decrease, and settling at $85.65 a barrel by 4 am GMT. Meanwhile, U.S. West Texas Intermediate crude was at $78.99 a barrel, down 73 cents or 0.9%, after a 2.1% increase the previous session.

Crude prices are softening as energy traders anticipate a potentially weakening crude demand outlook as a pivotal inflation report could force the Fed to tighten policy much more aggressively. Make or break moment is how bad of a recession Wall Street prices in.

The Federal Reserve's recent interest rate hikes, aimed at combating inflation, have sparked concerns that this could slow down economic activity and in turn, decrease demand for oil. Additionally, the resumption of Azerbaijani oil exports from Turkey's Ceyhan terminal has alleviated some supply concerns.

Last week's earthquakes in Turkey and Syria caused damage to the Ceyhan terminal, which serves as the storage and loading point for pipelines carrying oil from Azerbaijan and Iraq. But, with the terminal now operational again, supply worries have been assuaged.

Oil prices saw an upswing on Friday, boosted by Russia's announcement to cut crude production in March by 500,000 barrels per day, or roughly 5% of its output. This move was in retaliation against western sanctions imposed in response to the Ukraine conflict.

Both Brent and WTI contracts rose by over 8% last week, boosted by optimism over China's demand recovery. The world's largest crude importer and second largest oil consumer saw a scrapping of COVID restrictions in December, leading to a rise in demand. China's oil demand recovery is affecting its gasoline exports in February, but its refineries are maintaining diesel shipments at above 2 million tons.

Key Economic Announcements to Watch today

The Eurogroup Meeting on Monday, February 13 is expected to be a significant event for the Euro (EUR) currency, as the discussions and decisions made by the Eurogroup can impact the economic policies and financial stability of the eurozone, thereby affecting the value of the EUR.

The Consumer Price Index (CPI) for Switzerland (CHF) for the month of January is expected to show a 0.3% increase from the previous month's figure of -0.2%. This suggests that inflation in Switzerland is starting to pick up, which is generally positive for a currency. However, the YoY (Year-over-Year) Consumer Price Index (CPI) for Switzerland is expected to fall from 2.8% to 2.7%. This can be an indicator of a slowdown in inflation, which could potentially lead to a decrease in the value of the CHF.

The 3-Month Bill Auction and 6-Month Bill Auction in the United States (USD) will provide insights into the demand for short-term US government bonds. A higher demand for these bonds can lead to an increase in their prices and a decrease in their yield, which is typically positive for a currency. On the other hand, a lower demand can result in lower bond prices and higher yields, which can be negative for the greenback.

The Food Price Index (FPI) for New Zealand (NZD) for the month of January is expected to show a 2.2% increase from the previous month's figure of 1.1%. This suggests that food prices in New Zealand are rising, which can contribute to higher inflation and potentially lead to a decrease in the value of the NZD.

These announcements have the potential to impact their corresponding currencies and traders and investors will be closely monitoring the outcomes to gain insights into the health of each respective economy and make informed decisions.

Source: https://www.inveslo.com/daily-market-update/oil-prices-soften-on-short-term-demand-concerns-ahead-of-us-inflation-data