Last week, oil prices dropped from recent highs as investors booked profits in anticipation of the US Federal Reserve’s two-day meeting that begins on Tuesday.
Last week, prices had spiked sharply on fears of disruptions to Russian and Iranian exports. The fall in prices on Monday was limited by this.
Tony Sycamore, IG’s market analyst, told Reuters that after last week’s +6% rise, crude oil is likely to be trading near the top of its recent range.
It is also likely that many trading books in banks and funds closed their doors at the end last week, and the appetite for positions has decreased over the holiday season.
The price of West Texas Intermediate Crude Oil on the New York Mercantile Exchange at the time this article was written was $70.45 per barrel, down by 1.2%. Brent crude oil on the Intercontinental Exchange is currently trading at $74.18 a barrel, a 0.5% decrease from its previous close.
Oil price: sanctions risk
Last week, oil prices soared sharply, especially on Thursday due to fears about disruptions in the supply from Russia and Iran.
US Treasury Secretary Janet Yellen said to Reuters that the country was looking into further sanctions against “dark fleets” of tankers.
She said that US sanctions against Chinese banks will not be ruled out as the US seeks to reduce Russia’s oil revenues and its access to foreign supply to fuel their war in Ukraine.
The Chinese crude oil market has also seen a rise in prices due to the new sanctions imposed on companies that trade Iranian oil.
China is the biggest consumer of Iranian oil.
The administration of the US president Joe Biden did not enforce sanctions against Iran more strictly.
Warren Patterson, the head of commodities strategy for ING Group said that Donald Trump, who is set to take office in January, could adopt a more hawkish stance towards Iran than he did during his first term.
Patterson says that if Iran is subjected to more sanctions, the supply of oil could fall by a million barrels a day.
Patterson said:
It may be difficult to reduce the flow of Iranian exports to China.
Interest rates expectations
Crude prices were also supported by the interest rate reductions of global central banks last week.
Last week, key central banks from Canada, Switzerland and Europe lowered interest rates, boosting sentiment.
Reduced interest rates are good for commodities, as they reduce borrowing costs and increase liquidity.
The market was also anxiously awaiting the Fed’s Wednesday policy meeting.
The traders expected the Fed to reduce rates by 25 basis point, which would increase demand for oil on the short-term.
Investors’ sentiments were impacted by concerns about a poor demand from China in next year and a market oversupply.
The International Energy Agency predicts that the crude oil supply will be too high by nearly one million barrels a day in 2019.
The IEA stated last week that even if the Organization of the Petroleum Exporting Countries (OPEC) and its allies extend their production increase from January by an additional three months, the market will still be oversupplied.
This article Oil prices drop from last week’s peak as investors take profit before Fed meeting could be updated as new developments unfold.
This site is for entertainment only. Click here to read more
