Blue Lacy Advisors, LLC, - October Crude Oil Market Update
Minneapolis, MN | October 27, 2022 | By: Steve Sinos, Blue Lacy Advisors, LLC
Several organizations published their Monthly Oil Market Reports last week, including OPEC and the IEA. OPEC revised its forecast downward by 500 kbd, blaming Chinese lockdowns, inflation, and economic risk. For the same reasons, the IEA published downward revisions; now forecasts global oil demand at just 99.6 mm bpd for 2022. This isn’t to say either group expects the market to be loose going forward. Instead, it highlights the under-appreciated fact that the pace of growth is more important than balances for changing prices. At least for last week’s move, anticipations for slowing growth led to lower prices. Further weighing on the market, as referenced in both reports, has been currency volatility. Major trade currencies have also contributed to weekly and monthly volatility in Chai’s model. The Yuan, Yen, Rupee, Euro, and currencies from exporters in the Middle East and Asia have all been identified as drivers in recent weeks. As a basket, they’ve weakened relative to the dollar, exaggerating the cost of trade. The Yen has shown the worst dollar depreciation – down ~35% from its peak. The Euro has fallen 25% relative to the dollar. So, while the 12-mo strip is up ~30% from a low of ~$65 to ~$85 as of Friday, the currency-adjusted rise is substantially higher. In Yen, Brent is up 80%, Won 67%, Euro 65%, Ringgit 50%, and Rupee 49%. Given these levels of comparative inflation, it is understandable that the IEA and OPEC join financial forecasters in highlighting inflationary risks in their forecasts. The IMF sees these factors weighing on global economic growth, calling these risks “unusually large and to the downside.” It forecasts growth slowing to 2.7% in 2023 from 2022’s 3.2%.
*This summary is based off October 18, 2022
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Meet the Author!
Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.
He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.
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