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CapitalPanda | Is falling oil prices reducing inflation faster than expected?

Latest news

Read current news from the financial markets and expert articles from our analyst.

Is falling oil prices reducing inflation faster than expected?

Oil price is still in downtrend[1]

During Thursday's Asian session, WTI crude oil prices struggle to maintain US inflation-driven gains, remaining relatively inactive around $90.85 after reversing course from $91.79.* Despite this, challenges to risk profile and a cautious attitude coexist ahead of monthly demand predictions from OPEC and the International Energy Agency (IEA).

In general, according to OPEC representatives and industry insiders, growth in the world's oil consumption might decrease in 2023 as rising crude and gasoline prices contribute to inflation and a weakening of the global economy.[2]

As witnessed in recent weeks, the minor decline in oil prices and the rise in interest rates coincided with a decline in inflation in the United States.[3] US inflation is decelerating far more quickly than predicted by experts, which is a hint that the Federal Reserve's string of significant rate increases is squelching pricing pressures. According to the Labor Department, prices increased 8.5 percent in the largest economy in the world in month, down from a 40-year high 9.1 percent.


Chart 1: EURUSD value, daily timeframe (Source: TradingView.com)


Chart 2: EURUSD value, zoomed Chart 1, daily timeframe (Source: TradingView.com)

Connection with the USD

As can be seen by comparing the Chart 1 of EURUSD with the Chart 2 of the price of WTI crude oil, in principle they followed each other. When there was no external influence such as war events, political tensions or the current state of inventories, the price of oil followed the path of the EURUSD.

As we have witnessed the fall in inflation in the USA, although it is still high at 8.5% on an annual basis, the number of analysts, who believe that the FED will not continue aggressively raising interest rates in September, has increased. [a]


Chart 3: WTI crude oil prices, daily timeframe (Source: TradingView.com)

If there won’t be changes in the oil production, and international circumstances should stay the same while the US dollar continues to finally weaken, we could se the rebound of the oil prices.

In the case of weaker US dollar, we could see Target 1 (price around 110 USD) from Chart 3 achieved. Otherwise, Target 2 (price around 80 USD) is more real. [b]

Overview report prepared by Jozo Perić, Aalyst of CapitalPanda


[a,b] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.


*Past performance is no guarantee of future results.



[1] OilPrice.com: https://oilprice.com/Latest-Energy-News/World-News/API-Reports-Large-Inventory-Build-As-Oil-Falls-Back-Below-100.html

[2] Expectations for 2023: https://www.fxstreet.com/analysis/global-oil-demand-is-expected-to-slow-in-2023-202206151221

[3] US inflation: https://oilprice.com/Finance/the-Economy/Is-US-Inflation-Actually-Cooling-Quicker-Than-Expected.html

The content of this material constitutes marketing communication and should not be considered as any type of investment advice and/or investment research and/or a solicitation for any transactions. This material was prepared for informational/educational purposes only and does not imply an obligation to perform investment transactions nor does it guarantee or predict future performance. BCM Begin Capital Markets Cy Ltd and its relevant persons including affiliates, agents, directors, or employees do not guarantee the accuracy, validity, timeliness, or completeness of any information/data provided by third parties and assume no liability for any loss arising from any investment made based on the said information/data. Past performance is no guarantee of future results.

CapitalPanda | Czech National Bank left rates unchanged

Czech National Bank left rates unchanged

Interest rates were left unchanged by the CNB Bank Board. Thus, the discount rate is still at 6%, the Lombard rate is still at 8%, and the two-week repo rate (2W repo rate) is still at 7%.The interest...