After another action-packed week in the market, we observe systematic risks are playing a bigger role in the change in valuation of various asset classes. From the past week, notable events include the FOMC meeting and the oil market rally.
On Top of Our Mind This Week: Oil Prices Surge Amid Supply Concerns and Russian Export Ban
Brent Oil Futures Price Chart (Source: investing.com)
In a surprising turn of events, oil prices experienced a significant rally, with Brent crude futures rose to reach $93.60 a barrel, while U.S. West Texas Intermediate crude futures increased to $90.33. This rally marks the continuation of a three-week upward trend in oil prices, driven by multiple factors that have created uncertainty in the global oil market.
Key Drivers of the Oil Price Rally:
Weak U.S. Shale Output: The United States has witnessed a consistent decline in shale oil production, with output falling to 9.393 million barrels per day (bpd) in October, the lowest level since May 2023. This sustained drop in production is a cause for concern, contributing to the recent surge in oil prices.
Extended Production Cuts: OPEC member countries, notably Saudi Arabia and Russia, have decided to extend their combined supply cuts of 1.3 million bpd until the end of the year. These cuts have further tightened the oil supply in the market, elevating prices.
Market Correction Concerns: While oil prices continue to rise, some experts believe that the market may be due for a correction in the near future. The overbought territory reached by oil prices has raised concerns about potential volatility and a subsequent price correction.
Investor Action Points:
Investors are advised to closely monitor the oil market’s volatility, as it remains susceptible to supply constraints and economic uncertainties. The clash between reduced supply and economic outlook is a key factor to watch.
Leaving the increased volatility aside, investors are presented with promising opportunities as the oil prices surge. Investors have the choice to ride the rally by investing in the energy sector. However, it is very important to stay vigilant and view market volatility as short-term movements while doing so. It is essential to remain diversified, and to have a long-term perspective while thinking about allocations in a portfolio.
Market Recap This Week
In the past week, major U.S. indices exhibited a negative performance, with the S&P 500 closing down 3.9% at 4,320, and the NASDAQ dipping by 3.33% to 14,701. Chinese Index, CSI 300 saw an upward movement of 0.8% to 3,739.
The US movement was largely driven by the hawkish tone by the US Fed during the week when they mentioned that they are pausing interest rate hikes. He also mentioned that recession is not the baseline but it is sure in the forecast. The positive though was that the tone was not as hawkish as it was in 2022.
Investors are advised, as always, to stay diversified as they navigate through this period of more than average uncertainty.
Source: Bloomberg, Syfe Research, 23 September 2023
What is on the Radar for This Week?
For the next week, two major economies, The US and UK release their QoQ GDP data. These figures will be important as figures stronger than expected might lead to changes in the macroeconomic outlook on interest rate changes. Additionally, Fed Chair Powell will be speaking on Thursday, 28th of September as well.
Source: mints, Financial Times, Reuters, iStock (for the image), Bloomberg