Sep 26, 2022 09:22AM ET
VOT Research Desk
CONSIDERATIONS
Oil costs balanced out Monday, bouncing back after prior tumbling to the least levels in nine months after questions arose about the chance of the EU forcing a cost cap on Russian oil.
U.S. crude futures were trading 1.1% higher at $79.62 a barrel at 09:20 ET (13:20 GMT), while the Brent contract was up 0.7% to $85.61.After dropping about 5% on Friday, both contracts earlier fell to their lowest levels since early January.
Over the weekend, the executive arm of the bloc, the European Commission, met with member states to try to compromise on a set of restrictive measures to punish Russia for its invasion of Ukraine.
However, according to Bloomberg, Cyprus and Hungary have voiced opposition to the idea of imposing a price cap on Russian oil, and the EU nations are having difficulty agreeing on a solution.
Last week, Russian President Vladimir Putin made it worse in eastern Europe by announcing a “partial mobilization” of troops and calling for “referendums” on annexing the parts of Ukraine that Russia is still occupying.
However, aggressive monetary tightening by a number of central banks, led by the U.S. Federal Reserve, as they attempted to control inflation at historic highs at the expense of future growth has had a significant impact on the crude market’s sentiment.
The strong U.S. dollar has been a byproduct of the Fed’s rapid tightening. On Monday, the dollar index, which measures the greenback against a basket of major currencies, reached a 20-year high.
Because it makes them more expensive for buyers from outside the United States, dollar strength tends to reduce demand for commodities that are denominated in the greenback, such as oil.
The Organization of the Petroleum Exporting Countries and its allies, referred to collectively as OPEC+, have agreed to a symbolic cut in output at their previous meeting, which took place on Oct. 5.
The group has made it clear in recent months about the possibility of further action given the apparent disconnect between the physical and the paper market.”The market is moving toward levels at which OPEC+ will become nervous, if it hasn’t already. The next week’s meeting is scheduled for the group. This might be a fascinating meeting.
As of last Tuesday, the most recent crude positioning data revealed that speculators increased their net long positions in both benchmark contracts.
However, “this move was only driven by short covering, rather than new longs entering the market.”Speculators are likely to have reduced this position as a result of the market’s weakness since Tuesday.
