Imbalance in the oil market | 15 September 2023

#SP500:

Americans’ overall views on inflation were little changed in August, even as they predicted rising price increases for things like rent, homes and food, while downgrading their views of their personal financial situations, the New York Fed reported. The bank said in its Consumer Sentiment Survey for August that respondents see inflation a year from now at 3.6%, up from July’s 3.5%, while they project inflation three years from now to hit 2.8% versus 2.9% in July. Five years from now respondents see inflation at 3% from July’s 2.9%. The relative stability of inflation expectations last month came as the survey found respondents predicted accelerating price increases for a range of key categories. In August, the survey found expected price gains for gasoline, food, rent, medical costs and college. Respondents also predicted that house prices would rise 3.1%, the highest reading since July 2022.

Trading recommendation: sell 4505 and take profit 4325.

XAUUSD:

If Federal Reserve officials want U.S. financial conditions to tighten enough to cool the economy and inflation without triggering a deep recession, they're getting a strong helping hand right now from the dollar. The dollar is at a six-month high and has surged 5.5% since mid-July. That rip higher has been fueled by a rise in U.S. bond yields that has made the dollar much more appealing relative to other currencies. Since the dollar index hit a 15-month low and embarked on its current upswing on July 14, Goldman Sachs' U.S. financial conditions index has risen 52 basis points. The trade-weighted FX rate has been the biggest single component of that, accounting for 22 bps, even more than the 21-bps contribution from the jump in long rates. It is a small sample size, but the exchange rate is becoming an increasingly important factor tightening U.S. financial conditions. The strengthening of the US currency is negative for precious metals.

Trading recommendation: sell 1940 and take profit 1900.

#WTI:

Oil has staged an impressive rally over the last few weeks. Voluntary production cut extensions from Saudi Arabia and Russia have helped improve the supply side of the equation. U.S. stockpiles of oil have also dropped to year-to-date lows. Oil demand is picking up. China has ramped up imports to near-record levels, while the International Energy Agency forecasts fuel consumption likely reached another record-high last month. Tightening supply has been a significant driver of crude oil’s rally over the last three months. You don’t need to be an economist to understand that rising demand and falling supply equate to higher prices.

Trading recommendation: buy 85.95 and take profit 88.15.