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Trump Strikes at Oil Prices Again

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NEW YORK – February 26, 2019

President Trump has resumed his attacks on OPEC, saying that the world is too fragile to cope with rising oil prices, and urging the organization to "relax and take it easy."

Trump's verbal skirmishes with the Organization of Petroleum Exporting Countries caused strong price fluctuations in 2018 when the President demanded unlimited production from OPEC to support the consumers of raw materials.

After today's tweet, oil in New York has lost its previously won positions, dropping about 2% to $65.50 a barrel for the Brent mix.

Trump Strikes at Oil Prices Again

Recall that since the beginning of the year, oil has risen by almost 25% against the background of reduced production by OPEC countries and their allies, reducing concerns about the economic consequences of the trade war between the US and China, as well as in connection with the sanctions imposed by Washington against Venezuela.

However, it should be noted that oil prices are traded exclusively as a financial asset and almost completely repeat the dynamics of US stock indices.

From a fundamental point of view, oil prices are probably too high now, as the world economy is slowing down and this will have a negative impact on energy demand.

In general, financial markets have shown rapid growth since the beginning of the year, and a period of turbulence may begin in the foreseeable future.

It is worth noting that the Fed is still withdrawing liquidity, and new money is not coming to the market now. Those infusions that the system received at the beginning of the year from other central banks are now drying up.

The provision on the temporary lifting of the US debt ceiling is valid until March 1, inclusive, and after the limits are returned, the countdown will begin before the US exhausts the potential of so-called emergency measures to provide government funding.

There are some signs of concern about the borrowing limit in the short-term interest rate market.  Traders expect that US Treasury Secretary Stephen Mnuchin, as it was in the past, will resort to emergency measures so that the government can comply with restrictions on public debt for a certain time after March 1.

However, if Congress does not raise the borrowing ceiling or decide to temporarily suspend it, emergency measures will eventually be exhausted, and, according to some estimates, this may happen already in August. This, in turn, may have a negative impact on the demand for securities repayable just at that time, and on the chart of the yield curve of Treasury bills, there are already some distortions in the segment with such terms of circulation.

Even before that, the market will have to go through several events, first of all, speeches in Congress of Federal Reserve Chairman Jerome Powell, who should describe the position of the Central Bank after turning towards the "dovish" rhetoric, as well as US Trade Representative Robert Lightheiser.

Author: USA Really