According to analysts, current currency conflicts hit the black gold market hard. Tensions escalated after raising fears of an economic downturn amid an explosive collapse in interest rates for global central banks.
Recall that on Wednesday, August 7, the central banks of India, New Zealand and Thailand lowered interest rates, trying to protect their economies and exports from the effects of the US and Chinese trade war. According to experts, the reduction in rates is a sign of a serious threat to the global economy, which began with friction between Washington and Beijing.
The catalyst for the rate reduction process was the statement by US President Donald Trump about the upcoming increase in tariffs for a number of Chinese goods. In response, the PRC authorities weakened the national currency, trying to compensate for the impact of duties. On Monday, August 5, the yuan fell below 7 for one US dollar. This is the lowest level for the Chinese currency recorded after the global financial crisis of 2008, experts emphasized.
The beginning of the current month was not very positive for the black gold market either. In the first week of August, oil fell by more than 13% and from the peak values of April this year, it fell by 20% that shows a "bearish" trend. A weak effect on the raw materials market is also exerted by weak oil demand amid supply growth. Note that report by the Energy Information Administration (EIA) on Wednesday says that the unexpected increase in oil reserves that led to a sharper fall in oil prices, which have already begun to rise.
Experts emphasize the relationship between the dynamics of the foreign exchange market and oil demand. As a result of the strengthening of the US dollar, black gold rises in price. This directly affects the pricing for consumers, experts say. A widespread decline in interest rates by a number of central banks brought oil quotes down by 5%. Analysts also recorded a drop in demand amid worsening global economic conditions.
However, on Thursday evening, August 8, the situation unfolded in a positive direction. There is a ray of hope for oil quotes as they began to rise after the announcement of Saudi Arabia to reduce the export of black gold. Analysts believe that this was an attempt to stop the bearish market, which turned out to be successful. During the trading session Thursday, futures for Brent benchmark oil rose 2% to $57.35 per barrel. The cost of the light WTI grade increased by 2.27% to $ 52.26 per barrel. The measures taken by Saudi Arabia helped stabilized the market. However, experts find it difficult to answer how long this effect will last.
Experts recall that the threat of a currency war created concerns about a further decline in the global economy, which negatively affected the demand for oil. Nevertheless, a number of economists and market participants do not lose hope for a positive solution to current issues. According to Vitol's leading oil trader, Russell Hardy, oil demand will increase in 2020 with growth rates of around 800 thousand barrels per day.