Dip In Oil Prices
The week began with a dip in oil prices following an announcement of China’s lower-than-expected target for economic growth this year.
The Celestial Empire or more commonly known as The Red Dragon has set its target at around 5%.
Both Brent crude futures and US West Texas Intermediate (WTI) futures traded down by 1.5% at $84.53 a barrel and at $78.47, respectively.
The market is cautious ahead of the testimony by U.S. Federal Reserve Chair Jerome Powell this week, which could impact oil prices further.
Observations Made By Vandana Hari
Vandana Hari observed that crude remains stuck between nervousness due to the hawkish take of the Feds against the US economy and China’s reopening optimism.
The growth outlook of China was lower than last year’s gross domestic product (GDP) growth target of 5.5%.
The GDP grew by just 3% last year, owing to the pandemic. Policy sources had previously indicated that a range as high as 6% could be set for 2023.
However, Premier Li Keqiang stated that the expectations of private investors, unstable businesses, and insufficient demand are the main problems.
On Friday, the oil prices ended their trading day with an increase of a dollar. This was following a report suggesting that the rumors were inaccurate that claimed that the UAE was leaving OPEC.
However, the market continues to be impacted by global central banks’ tightening policies due to fears of rising inflation.
This could result in rate hikes across the world. Traders are already factoring in rate hikes, but they are hoping for smaller increases than those seen last year.
Powell to Testify to Congress
Powell is set to testify to Congress this week where he shall give his insight into the scenario. He is expected to be asked about whether the largest oil-consuming country in the entire world needs larger rate hikes.
Future U.S. rate hikes are also expected to depend on what the February payrolls report and the February inflation report reveal. Both of the reports are due in the coming weeks.
According to Christine Lagarde, European Central Bank President it is probable that the bank may increase the interest rates in the ongoing month to keep a leash on inflation rates.
Why is the Price of Oil as a Commodity Crucial?
Oil is a critical source of energy for various sectors of the economy, including transportation, industrial manufacturing, and agriculture.
Therefore, fluctuations in the price of oil can significantly impact the cost of production and affect economic activity in various industries.
How the price of oil is doing in the commodity market is essential for the global economy. The commodity is traded globally, and its price is determined by global supply and demand factors.
As a result, changes in the price of oil can impact the economies of both oil-producing and oil-consuming countries. It can also affect the balance of trade and current account balances.
Price of Oil to Have Significant Impact on Inflation
The price of oil also has a significant impact on inflation. It is seen as a measure of the rate of change of prices for goods and services in an economy.
When the price of oil increases, it can raise the cost of transportation and production, resulting in high prices in the economy overall.
The financial markets are also impacted by the price of oil since it is one of the most actively traded commodities. The price of oil can impact the value of currencies, stock markets, and other financial instruments.
Price of Oil to Have an Impact Globally
In conclusion, the price of oil is a crucial commodity price that can impact the global economy, inflation, and financial market.
This makes it an essential indicator of economic activity and a crucial factor in the decision-making process of governments, businesses, and individuals.
Oil prices fell on Monday due to China’s lower-than-expected target for economic growth this year and investors’ cautiousness ahead of Powell’s testimony this week.
The market is also being impacted by global central banks’ tightening policies and traders’ anticipation of rate hikes. This is coupled with the hope that the rate hikes will be smaller than those seen last year.
However, the European Central Bank is set to raise interest rates this month to combat inflation.