By Daniel Takieddine, CEO MENA at BDSwiss
ENERGY markets were seeing subdued price movements while uncertainty has taken a toll on traders’ sentiment. Expectations were strongly affected by the lack of clarity regarding either market forces and potential next steps from the Federal Reserve.
Doubts were fueled by the successive data releases and central banker speeches during the last few weeks. While the Federal Reserve reduced the pace of interest rate hikes and its president adopted a softer tone, job market figures suggested stronger inflation than expected.
Finally, inflation figures in the US resulted in higher price volatility and fears of seeing interest rates remain higher for longer. Such a trend could affect economic growth and demand for energy throughout the world.
In the meantime, improving activity in China could fuel demand for oil and natural gas over the medium term and push prices higher. In the same manner, better expectations for economic growth in other regions of the world could help the market rebound.
Supplies could be another factor in favor of higher prices in particular with OPEC maintaining its production levels and Russia potentially cutting volumes starting in March.
Oil prices have already stabilized during the last two months compared to last year and could find their way back to higher levels if supplies continue to lag behind demand growth. However, over the short term, higher-than-expected crude inventory levels could add some weight to the market.
Improvements in air travel, in particular with China opening up, could also increase demand for oil derivatives in the near future.
Natural gas prices, on the other hand, could remain under pressure while temperatures came up warmer than expected and some regions like Europe were able to secure large stocks.
On the flip side, air conditioning use could push demand for natural gas in the summer. As a result, prices could return to the upside over the medium term.
