Oil prices were nearing $70 per barrel, before they fell for a second day in a row this Wednesday; as coronavirus cases in India and Southeast Asia keep surging, provoking demand concerns and fears for inflation; which in turn would make the Federal Reserve to raise interest rates and limit economic growth.
Firstly, Brent crude fell $1,4, 2%, to $67,31 a barrel. According to Reuters, it settled 1,1% lower on Tuesday, after briefly reaching $70 a barrel in earlier trading session.
Secondly, West Texas Intermediate (WTI) dropped $1,36, 2%, and settled in $64,13 a barrel, following a 1,2% fall since Tuesday.
Thirdly, as said above, Brent crude briefly reached $70 a barrel, driven by optimism of demand recovery; as well as the reopening of the U.S. and European markets, along with the world biggest oil consumers.
However, later in the session fears of the covid-19 virus disrupting the demand returned; specially after cases in India, Taiwan, Vietnam and Thailand keep rising; prompting a new series of movement restrictions and lockdown periods.
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Fears of inflation turn investors away from oil
In addition, Vandana Hari, energy analyst at Vanda Insights, quoted by Reuters, said. “Yesterday’s trade proved again that $70 signals irrational exuberance. Assessing the global demand picture remains challenging; as reopening and restrictions across the world are probably the most diverse since the start of the pandemic.”
Nevertheless, despite this, Russian Prime Minister, Alexander Novak, said oil prices were stable and that Russia’s market was balanced; in fact, with demand slightly surpassing supply. However, the fears for inflation pushed investors to turn away from riskier assets, like the ones in oil.
On the other hand, Westpac economist Justin Smirk, said. “The Federal Reserve is very serious about holding rates low, but the market’s speculating about earlier movement weighed on the outlook for growth and in turn on commodities demand.”
Finally, despite the rumors, Fed has indicated that interest rates will stay at their current low levels through 2023. However, market analysts believe rates may start to be raised by September 2022.
