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WEEK AHEAD: SEPTEMBER 14

Short Description

Oil prices are down heavily with Brent crude having dropped from $46 to below $40 per barrel in a week. I discuss what’s pulling oil lower as well as the September Fed meeting and rundown the economic calendar for the week ahead. Thanks! Harriet

Video Script

Have we hit PEAK OIL for 2020? - THE WEEK AHEAD (Sep 14-18, 2020)

Hi everyone, I’m Harriet and I’m filling in for Rich,

My focus this week will be the sudden sell-off in oil markets as well as the three big central bank meetings this week. I will of course, also give a rundown of the week’s economic calendar.

I’ve made sure to include a little factoid in Rich’s absence but don’t worry I’ll make it quick. Did you know that the word petroleum literally translates as ‘rock oil’? It stems from the Greek word ‘Petra’ which means rock and ‘oleum’ which means oil. There you go!

If your oil and Greek knowledge has improved after that– please click the like button – it really helps us spread the word about these videos!

Moving on to the economic calendar, it’s a slow start on Monday so we look to Tuesday when it starts to get busy. There is August industrial production and retail sales data from China, both of which are set to drop on a year over year basis versus July. Then we have UK unemployment, Germany ZEW data and US industrial production. Wednesday and Thursday are the big ones. We have US retail sales and the Fed meeting on Wednesday. Then it’s the Bank of Japan and Bank of England rate decisions on Thursday and we round off the week with UK retail sales.

So oil prices have slumped pretty quickly. After two months of barely moving outside a three dollar range in Brent crude oil, we dropped from above forty-five dollars per barrel to under forty inside a week. What changed? Well after speaking to a number of seasoned traders, the first surprising answer was tech stocks! You’ll notice it was on the days that the Nasdaq got hit that oil dropped the most. That makes sense to the extent that both assets have seen a melt-up in prices from the March lows and were due a pullback when market sentiment soured. 

The other key factor here is oil demand. Traders have been waiting all summer for a pickup in energy demand that just never materialised. Remember, 50% of oil consumed in America comes from the transportation industry. And people have just stopped travelling because of tight travel restrictions and a natural concern for their health because of the pandemic. Until people can be convinced travelling doesn’t put them at serious risk, it’s hard to see that changing. So what could help oil bounce back? The experts tell me it’s all about stock markets and the dollar. Higher stocks and a weaker dollar show investor confidence, which is normally good for oil.

Before I wind things up, I’d like to just touch on the central bank meetings this week. The Fed is always the big one but Jay Powell already let the cat of the bag at Jackson Hole with the news on average inflation targeting. What might actually be more interesting is how the Bank of Japan and Bank of England frame their own policy reviews around what the Fed has done. If all the big developed central banks announce the same kind of policy – then in theory they cancel each other out with respect to currencies. However, one asset that could do well if we see central banks acting together saying they will tolerate higher inflation is the best known inflation-hedge, and that’s gold.

Right thanks everyone, good luck trading and make sure to subscribe to our channel so you don’t miss the next video.
 

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