Market In-Review: Oil Continues to Gain Ahead of OPEC Meeting

■ Oil climbs to highest since early July, on OPEC cut speculation, at USD 48.52 per bbl

■ Reported to decrease at U.S. Crude inventories further fuels oil’s rise

■ Dovish Fed Jul minutes erode tightening concerns from Dudley’s commentary

■ Minutes also translate to USD weakness, losing 1.5% vs. EUR

Speculation on an upcoming production cut lead by last week’s Saudi commentary has aided oil prices recover no less than 9.2% during the week. Ending the session at a level of USD 48.57 per barrel marked the highest for the black gold slice July 6th. Market behavior has been fairly attentive to the Department of Energy reporting a 2,508 K decline of inventories, on Wednesday. Friday’s report by Baker Hughes, stating that the rig count has increased by 10, to 491, alternatively, was broadly overlooked.

Monetary conditions have also proved overall comfortable for oil. Some concerns for an upcoming rate hike were recorded on Tuesday, as FOMC member Dudley commented that announcing one in the upcoming Fed decision in September is likely and that there’s too much reliance on monetary policy. These concerns were dissolved the following day, however, as Fed minutes from July’s Federal Open Market Committee revealed that officials were split for the decision on whether a rate hike is needed soon, while stating that the committee would “likely to have ample time to react” if inflation rises quicker than expected. This has lead FOMC voters to agree on waiting for more data to see how the economy is doing. This dovish language has aided support bond markets, thus taming interest rates, which move inversely to their prices. The yield of the U.S. 10 year went from around 1.58% ahead of the minutes, dipping to as low as 1.54% afterwards. Although some gain was recorded on Friday, at 1.5781%, is still substantially lower than most of the last year.

Accommodative conditions do come with a price tag

Dudley’s mention of over reliance on monetary policy can surely be inferred from the state of the Greenback itself. Amid a rather hike-reluctant Fed, EUR/USD added 1.46% during the week. At a level of 1.1325, the currency pair reflects the most depreciated Dollar vs. the Euro since the Brexit vote some two months ago, in fact, it is less than 0.9% than peak levels recorded ahead of the vote’s outcome, when a Bremain appeared as the more likely out outcomes. USD/GBP exhibited similar performance through most of the week, with a 1.92% Mon-Thu gain. Expectations that U.K. Prime Minister Theresa May will trigger article 50, and thus a Brexit, however, has weakened the Pound some 0.7% vs. the Dollar.

With oil and currencies taking most of the weekly interest, stock investors enjoyed a quieter session.The S&P500 did decline somewhat ahead of the minutes, but after a quick recovery it ended the week at a negligible 0.01% loss. The DAX lost 1.6% for the week, though in some sense it gained most of it back with the strengthening of the Euro. The FTSE 100, similarly, is down 0.8% for the week. In Asia, a fairly large 2.2% decline was recorded at the Nikkei 225, countered by a 1.07% decline of USD/JPY. The Hang Seng, alternatively, advanced 0.75%.