The price of crude oil continues to fall despite China’s ongoing struggles in its fight against the COVID pandemic and growing concerns about the possibility of a global recession brought on by rising interest rates. Even with Friday’s increase in oil prices, the benchmarks were still on pace to post their worst weekly loss in four due to concerns that demand will be negatively impacted by Covid-19 curbs in China and weak global growth. OPEC+ is expected to discuss output reductions at their meeting on September 5. Despite Friday’s increase in oil prices, the benchmarks were still on pace to post their worst weekly loss in four.
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The key source of uncertainty for the forecast on crude consumption is China, and it appears that it will be difficult to meet the goal of restoring the momentum. The closure of Chengdu, an essential transportation hub for the Chinese economy, would inevitably result in yet another significant economic setback.
Wall Street is currently in a risk-off mindset, which is driving the value of the dollar to fresh all-time highs and putting additional pressure on the prices of all items. Oil appears to be in a precarious position as the potential of further Chinese lockdowns looms and the king dollar appears prepared for another large rally.
If September turns out to be a slaughter on Wall Street, the price of WTI crude could go towards the $80 range; however, the supply outlook should prevent the selloff from going much farther. As long as there are persistent worries about the status of the global economy and markets, OPEC and its allies will have easy issue justifying a modest reduction in production.
Gold prices are currently in a freefall and have touched the $1700 barrier as a result of another solid set of economic indicators that raises the probability of additional rate hikes from the Federal Reserve. Gold is becoming a punchbag as a result of the revival of the king dollar trade brought about by rising Treasury yields. There has been nothing but bad news from throughout the world, and there is little sign of reprieve for gold until the rise in global bond yields comes to a halt. Gold prices could fall to around $1,650 an ounce if the nonfarm payroll report turns out to be more robust than expected.
Even though the leading producer, Saudi Arabia, claims that supply is still tight, a meeting of OPEC+, also known as the Organization of the Petroleum Exporting Countries and Allies, is scheduled to take place on September 5. This event will take place against the backdrop of falling demand and price deflation. Chengdu was the latest city to seek a suspension on Thursday, which would harm firms like Volvo, which is causing investors to be concerned about the immediate effects of China’s increasing Covid-19 limitations.
The same day, data showed that for the first time in three months, manufacturing activity in China decreased in August due to reduced demand, power restrictions, and outbreaks of Covid-19. This was the first time this had happened since June.