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Oil Technical Analysis – October-8-2023

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Reuters – The world’s economy might face new problems because of recent fighting in the Middle East. This is happening when banks all over the world are dealing with new trends in inflation and a possible drop in economic confidence. These problems are coming up just as people were starting to feel hopeful about getting control over the price increases caused by the pandemic and Russia’s invasion of Ukraine in 2022.

The sudden violence in Israel, where hundreds of people have died as Hamas fighters attacked from their base in Gaza and Israel fought back hard, has made people worried about a bigger conflict in the Middle East. This adds to the global instability that was started by Russia’s military actions about a year and a half ago.

It might take some time to see all the effects of this, and it will depend on how long, how intense, and how widespread the conflict is in the region.

Agustin Carstens, who is the General Manager of the Bank for International Settlements, said during a presentation to the National Association for Business Economics that it’s too early to say what might happen. But we might see immediate effects in oil and stock markets. This war could bring new challenges to a world economy that’s already slowing down. It also could be a problem for U.S. markets that are still trying to adjust to the idea that the Federal Reserve might keep interest rates high for longer than many investors thought.

Oil Technical Analysis - October-8-2023

Oil Market Analysis

Carl Tannenbaum, who is the Chief Economist with Northern Trust, said that any kind of economic uncertainty can make people put off making decisions, increase risk premiums, and make people worried about future oil prices, especially because of the region where this is happening. He also said that people who watch the markets will be paying close attention to how things develop and whether this latest outbreak of violence in the Middle East, which is a region that has had instability for a long time, takes a different direction.

Oil Market Analysis: A Shift in Focus

This week, leaders from around the world are meeting in Morocco. They’re part of the International Monetary Fund and World Bank, and they’re talking about the world’s economy. The economy is still changing because of the pandemic and trade tensions, and these are big topics for the meeting.

Central banks have a problem. The Middle East is fighting, and this could cause new inflation pressures. The Middle East has big oil producers like Iran and Saudi Arabia, and important shipping lanes through the Gulf of Suez. Officials at the Federal Reserve (the Fed) have said that high energy prices could risk their plan to slowly ease inflation. They also think that the U.S. economy will likely avoid a recession, unless something unexpected happens.

Now that there’s fighting in a region that produces a lot of oil, people are watching traders and major players like Iran and Saudi Arabia closely. The trading in bond and stock markets in the next few days will show how markets think this will affect things.

Karim Basta, who is the chief economist at III Capital Management, said that the conflict could cause higher oil prices, and risks to both inflation and growth. This means the Fed has to figure out whether higher prices or slower growth is more worrying.

Officials at the Fed have been watching a recent increase in U.S. Treasury bond yields. They’re looking for signs that investors may have pushed financial conditions too far to cool inflation, risking a big economic slowdown. If the war between Israel and Hamas makes people more worried about the world’s economy, it could change this trend. Money might rush towards U.S. Treasury bonds, which are seen as safe during potential crises.

While falling market interest rates might usually be seen as a possible source of renewed inflation (encouraging consumers and businesses to borrow and spend), this time might be different. The risks to the economy of a new regional war could become the focus.

  • 8 October 2023
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