WTI extends recent rally but fails on first test of $89. Zero-Covid in China continues to weigh on global demand. Iran talks, potential price cap discussions remain in focus.
has been in a sustained downtrend for weeks, which will come as welcome news to policymakers and central bankers. Continued hawkish policy has put a dent into global growth prospects, which saw WTI trade down to $81/bbl.
Oil prices had slumped in early September as China locked down additional cities as a result of its “Zero-Covid” policy. China’s decision to shut down key cities continues to challenge the global growth picture, with some arguing that there could be spillover effects. Should China elect to move away from “Zero-Covid,” the return of Chinese demand to the market could see energy prices firm up sharply.
Late Friday, the US Treasury revealed guidelines on a proposed Russian oil price cap. Headlines also came out over the weekend that France, Germany, and the UK all had doubts as to whether Iran is truly committed to the new nuclear agreement. Should an agreement be reached, Iranian crude could once again flow to the global marketplace.
The direction of oil may rely on whether traders continue to buy the “soft landing” narrative. Should traders feel that the Fed will not cause a recession as a result of its tightening campaign, a boost to growth forecasts may elevate oil prices back toward $100/bbl. Tuesday’s CPI print may offer a glimpse as to what the Fed may do next week at the September policy meeting, with a soft print potentially increasing the chances that we see less tightening into year-end.
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