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Oil Prices Slide Today but Economists Predict that They Will Rise Again
05.08.2022

Oil prices have dropped significantly from their recent peaks. Although the price of oil has been rising slowly along with renewed demand post pandemic lockdowns, it almost hit all-time highs in the beginning of the year when Russia invaded Ukraine. A barrel of oil was trading at approximately $120 - that’s double the average price of $60. However, we have been seeing a steady decline in oil prices over the past few weeks. West Texas Intermediate settled 2.1% lower at $88.54 a barrel on Thursday, and continues to circle around the same today. Similarly, Brent Crude Oil futures were trading 2.75% lower at $94.12 per barrel on Thursday, but have slid to around $93.79 today.

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Despite the decline, investors see the merit to keep buying oil because they believe that the prices will remain on the higher end or climb even higher. Some economists believe that the price decline was a mere correction in a bull market that has been going since spring of 2020. The need to replenish 180 million barrels of US reserves and the ongoing tight supply sure make a good case for that theory. Ever since Russia invaded Ukraine, the west has slapped Moscow with countless sanctions, one of them has been on oil and gas imports. The issue is that Russia is one of the major global oil producers and it's unlikely that the remainder of OPEC or even OPEC+ will be able to fill Russia’s gap. A supply cut from Russia could push crude oil above $130 per barrel, according to Bank of America analysts.

Traders will be keeping an eye out for adjustments on the sanctions, as well as how successful OPEC+ will be at increasing the output in September.

Stock Markets

Markets are giving mixed signals ahead of the employment report scheduled to be released later today. Traders are patiently waiting for the NFP (Non Farm Payroll) figures. The general market consensus seems to be 250,000 jobs added in July, against 372,000 that were added in June. A higher number would indicate that the economy is growing, which would in turn propel the Fed to continue tightening its monetary policy. A lower number, on the other hand, would show that the economy isn't doing too well and it might force the Fed to pause the tightening. The markets are torn as investors struggle to settle on a forecast - this is also evidenced by the mixed stock market performance. If the numbers are weak, it will give ammunition to the ‘doom and gloomers’, which could potentially bring the USD down significantly. On the other hand, positive figures would reinforce investor confidence and we could see significant rallies.

In other news, space tourism company, Virgin Galactic, announced that it is yet again postponing the commencement of its commercial space flights. They had already pushed the debut from the fourth quarter of 2022 to the first quarter of 2023 before, and now they’ve it to the second quarter of next year. Unsurprisingly, company stock dropped over 10% in after-hours trading. This is yet another blow to the stock which is already over 70% down in the past 12 months.

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Elsewhere, Nancy Pelosi’s visit to Taiwan backfires as many have predicted. Today, China slapped sanctions on her and her immediate family members in response to what they call “egregious provocation”. The nature of the sanctions remains unclear at the time, but the visit has undoubtedly created even more pressure on an already-strained relationship. The incident could impact the markets as well, but most of the focus is likely to rest on the NFP report.

Key Takeaways:

  • Oil prices slipped today with WTI trading around $88.54 and Brent around $93.79.
  • Some analysts suggest that oil prices still have room for growth.
  • Traders awaiting NFP data today to provide clarity on market movements.
  • Virgin Galactic postponing its commercial space flight debut again.
  • Nancy Pelosi slapped with sanctions as retribution from China
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