Three bearish factors facing oil markets in 2022

It was only when the world began to embrace some naturalism in terms of the global economy and social mobility that a new form of South Africa emerged, technically called B.1.1.529 and His name is OmriconIn addition, policymakers, politicians, and investors emerged preparing for another wave of coronavirus-related restrictions. The UK already has block mode For people traveling from certain African countries, so do other USA. The new dynasty shook the oil markets as a benchmark for Brent lost 10.7 percent In a day when the news came out – the biggest one-day drop since April last year. While this will be the focus for the oil markets in the coming weeks and days, it is not the only bearish factor in the oil markets at the moment. Three interrelated factors, the US-China trade war, a rising dollar, and rising inflation will also hold back the much-talked-about rise of Oil to $100 (the price at which many banks and institutions tend to believe that oil will eventually return).

Brent and West Texas Intermediate Both fell on the day the news was released, and despite a brief respite the downtrend has continued since then. Countries such as the United Kingdom, the United States, Brazil, India, Japan, Australia, Thailand and Canada have either imposed or are in the process of doing so on flights from Africa. This has caused renewed fears of closures.

However, there have been some significant developments regarding the US trade war with China as well. China criticized The United States to put dozens of its companies on the blacklist, a list of famous entities, said it could impede the progress made so far in terms of thawing economic ties between the world’s two largest economies. Meanwhile, China has asked its Didi express service to de-list from the New York Stock Exchange over “data security concerns.” Moreover, China failed to achieve its target regarding imports from the US as part of the trade deal. As the chart below shows, it was only able to meet 56 percent of the amount promised.

imports

From January 2020 to October 2021, the total value of imports to China from the United States reached 208.3 billion dollars compared to the target $334.8 billion. Next division by Peterson Institute for International Economics interesting.

China

distance The last virtual meeting Between Biden and Xi, the idea of ​​lowering tariffs remains in doubt. Any further escalation due to the above and more developments could lead to another period of economic instability between the US and China, lowering investor sentiment globally and affecting oil prices as it did in 2018.

There is another factor that can play a big role in negatively affecting the demand for oil and, accordingly, the rise in the price of oil, and that is the rise of the dollar. Due to the release of promising economic data, strong consumption numbers, and the prospects for higher interest rates as the Federal Reserve moves towards a more hawkish policy, the dollar index is rising and now standing at 96, the highest level since June 2020. HSBC, JP Morgan and others have already made calls suggesting the dollar could rise further.

There is an inverse relationship between the dollar and commodities as they are priced in US dollars. As such, a stronger dollar makes it difficult for other countries, such as emerging economies that are already under massive financial pressure due to Covid-19, to purchase commodities such as crude oil. This decrease in demand will lead to lower prices. This threat of dollar strength may persist in the coming year due to the third downside risk to oil prices: rising inflation.

dollardollar

Not surprisingly, the specter of inflation is now frightening central banks around the world. Inflation fears come as a result of many factors such as rising shipping costs, large gap between prices paid and prices received, low selling of inventory ratios, historical cash amounts in the form of Covid-19 support packages, and a lot more. more. Against this inflationary background, countries all over the world are struggling with rising food prices, especially food items, which, according to the Food and Agriculture Organization of the United Nations, are on alert. Highest level in 10 years. Inflation in the United States is among The highest in the world It stands at 6.2 percent, with prices rising at their highest pace in 30 years. This is not just limited to the US like UK inflation touch 4.2 percent The cost of living is rising at the fastest rate in a decade. For emerging markets, it’s even worse.

new

There has been a flurry of interest rate increases around the world with New Zealand raising the rate twice in two months. South Korea has raised interest rates twice since August. Pakistan raised the interest rate recently as well. Higher interest rates will only make emerging markets suffer and increase financial pressure. This, in turn, will affect the overall economy and oil demand.

New Zealand

So, while Omricon remains the biggest short-term concern for oil markets, the potential for a renewed US-China trade war, a stronger dollar, and higher inflation with higher interest rates are all long-term systemic risks that markets seem to be oblivious to these days. .

By Osama Razavi for Oilprice.com

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