Oil-dollar: market expectations on the eve of the economic forum in Jackson Hole


Commercial oil inventories in the country fell more-than-expected, according to data from the Energy Information Administration (EIA) of the US Department of Energy released on Wednesday. In the week of August 14-20, they fell by 3 million barrels. The US Department of Energy on Wednesday also announced a drop in gasoline inventories by 2.2 million barrels (oil market analysts predicted a decrease in gasoline inventories by 1.5 million barrels), while the estimated demand for gasoline in the reporting week rose to almost 9.6 million barrels per day against 9.3 million barrels per day in the previous week.

These are positive factors for oil prices, however, they were not enough to significantly support the upward rally that formed at the beginning of the week.

Oil quotes are under pressure from concerns about the delta strain of coronavirus and expectations of an imminent increase in OPEC+ production.

At the same time, according to incoming reports, the United States is ready to make concessions in negotiations with Iran in exchange for the country's abandonment of its nuclear program, which implies the lifting of sanctions on Iran and an increase in the volume of oil supply on the world market due to Iranian oil.

These are negative factors for oil prices.

In addition, a possible curtailment of the Fed's stimulus measures may become an additional negative factor, since it will lead to a strengthening of the dollar and, accordingly, to a decrease in commodity quotations denominated in dollars.

Investors await speeches from the heads of the US financial system at the Jackson Hole symposium. The main attention of market participants will be paid to the speech at this symposium by the head of the Fed, Jerome Powell. It is scheduled for Friday at 14:00 (GMT).

If Powell confirms the recent signals from executives that the announcement of the withdrawal of stimulus could be made already at the November meeting of the central bank, then this could lead to a decrease in the propensity of investors to buy high-yielding risky stock market assets, the dollar will receive support and strengthen, and oil quotes at the same time may resume decline.

At the same time, given the rise in Covid-19 cases and some signs of a slowdown in the economic recovery, Powell may announce the continuation of the extra soft stimulus policy from the central bank, thereby reassuring investors.

Uncertainty is very high, and the incoming information is largely contradictory, given the situation with the spread of the delta strain of coronavirus.

If concerns about Covid-19 begin to decline, and the rhetoric of Powell's statements regarding monetary policy is "dovish", then stock indexes and commodity prices, including oil, are likely to resume growth.

Meanwhile, other unaccounted factors may unexpectedly affect the oil market. According to the US National Hurricane Monitoring Center, worsening weather may be observed in the western Gulf of Mexico by Sunday, which could lead to disruptions in the work of local oil enterprises and, accordingly, to interruptions in oil supplies and an increase in prices for petroleum products.

Also, participants in the oil market, as usual, will pay attention to the publication on Friday (at 17:00 GMT) of a report on oil platforms from the oilfield services company Baker Hughes. Previous data from Baker Hughes reflected an increase in the number of active rigs to 405 units (versus 397, 387, 385, 387, 380, 378, 376, 372, 365, 359, 356, 352, 344 in previous reporting periods). It is obvious that the number of oil companies in the US is growing again, which is a negative factor for oil prices. Their next growth will also have a negative impact on oil quotes, although it will be short-term.

From the news for today, which will cause an increase in volatility in the quotes of the dollar (and the financial market, in general), investors will pay attention to the publication (at 12:30 GMT) of the reports of the US Census Bureau and the US Department of Labor with updated data on GDP for the 2nd quarter and weekly data on the labor market with statistics on the number of jobless claims.

The revised estimate of GDP for the 2nd quarter is expected to improve (+6.7% versus +6.5%, according to preliminary estimates). In the previous 1st quarter, US GDP grew by +6.4%. This is positive information for the dollar.

Economists also suggest that initial jobless claims rose last week, but not as much (to 350,000) relative to the new pandemic low of 348,000 hit the previous week. This is above the pre-crisis level, albeit below the highs reached at the beginning of the pandemic. In 2019, when the Covid-19 pandemic had not yet begun, the average number of initial applications submitted weekly was 218,000.

If the data on the number of jobless claims still turn out to be better than forecast, the dollar will also receive support ahead of the start of the Jackson Hole symposium.

*) at the time of this article's publication, Brent crude oil futures were traded near strong resistance at $ 70.66 a barrel, while DXY dollar futures were traded near 92.92, about 10 pips above yesterday's closing price.