Forex Analysis & Reviews: 01.03.2023 - New month

01.03.2023 04:58 PM

New month - new horizons: oil prices rise

The oil market started Wednesday morning on a good note. The price was growing at a furious pace, which has already allowed it to reach the highest values of the previous week. Oil prices rose after upbeat reports from China regarding the economic growth and increase in demand for hydrocarbons, the confirmation of which the market participants have been waiting for so long.

In the meantime, when one of the uncertainties became clearer, traders sigh with relief and wait for new reports on crude oil reserves in the United States, which, however, may shake the emerging confidence in oil.

Brent crude for May delivery added 0.6% at $83.95 a barrel on the London ICE Futures Exchange. The previous trading session was also not bad, with the brand marking a 17% or $1.41 increase, which placed it at $83.45 a barrel. What's important now is the fact that the positive sentiment has not disappeared, and continues to support the price.

The West Texas Intermediate (WTI) for April delivery was also rising on the New York Mercantile Exchange. The rise has already amounted to 0.62%, or $0.48, and the price has moved to $77.53 a barrel. Tuesday's growth was very tangible, with the brand managing to gain 1.8%, or $1.37, in trading, which put it within $77.05 a barrel. This made it possible to win back almost all losses of the previous days.

In general, oil raw materials did not feel too confident in February. During the whole period, values fluctuated, which caused the price to fall in the reporting period. Thus, Brent lost 0.7% of its previous value in February. WTI dropped much more sharply, its February fall amounted to 2.3%.

The main impetus for the growth was macro data from China. Recall that market participants have long been following the situation in the Chinese economy, waiting for confirmation of their assumptions about significant growth, which became possible after major restrictions on Covid were lifted. In this case, it is almost safe to say that the forecast has come true.

According to the latest data, China's manufacturing PMI increased by more than 2 points in February. It moved from 50.1 points to 52.6 points. This was a complete surprise to analysts, who had spoken about a very moderate increase to no more than 50.5 points. The indicators, which exceeded expectations, could not help but encourage the oil market, which received a confident signal for growth.

Another key indicator, the services PMI, was also significantly higher than its previous value. The index rose 1.9 points, which moved it from 54.4 points to 56.3 points. This was the new highest value for the last two years.

Recall that the level of the indicator, exceeding the mark of 50 points, is evidence of sustained growth in business activity of the sector. The value of less than 50 points indicates the fading of interest.

News on the U.S. monetary policy added pressure on the oil market. Most analysts were inclined to believe that an increase in the rate was inevitable. And the Federal Reserve did not deny it. The only question was how serious this increase would be. Essentially, the Fed was caught between two fires. On the one hand there are incredibly high inflation risks, and on the other - support for the national currency. It is not clear how to choose the golden mean here.

Another situation, which worries oil market participants as much as the central bank's actions, concerns indicators of growth of oil reserves in the United States. On Tuesday, analysts published preliminary data, according to which we should expect growth of about 6.2 million barrels by the end of last week.

Official data will be released on Wednesday evening. However, people already expect an increase by 500,000 barrels. This may put significant pressure on hydrocarbon prices, which will affect the change of trend in the market.

The confrontation between the two global trends - economic growth in China and increase in crude oil reserves in the U.S. - may act as a deterrent to the market for a while. However, it is obvious that the first trend is much stronger than the second, so if oil prices start to fall, it will look more like a correction to the negative, rather than a prolonged trend.

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