The price of crude oil slightly declined yesterday as Russia relaxed some of the measures of its fuel export ban. This together with high interest rates and the slowdown of the China economy could lead to further declines in oil prices.
US and German bond yields rose yesterday
The week started with sharp drops in government bond prices in both the US and Europe.
This is due to central banks planning to keep interest rates high for a considerable amount of time, rather than the chance of further hikes. Officials of the Federal Reserve and the European Central Bank keep repeating this.
US bond yields hit new highs with the 10-year bond above 4.50%.
The 10-year bond yield for Germany also increased to its highest level since 2011.
European stock markets are being affected by China’s real estate sector
The stock market remains in risk-off mode. They continue to feel downward pressure from the increase in financing requirements brought on by the rise in market interest rates.
Significant drops were observed in European markets, with the Eurostoxx 50 dropping 0.80% throughout the day.
Apart from the increase in market interest rates, European stock markets are also being impacted by problems around China’s real estate sector. The stocks of Evergrande fell another 20% yesterday. Mining companies with a high reliance on China, like Rio Tinto Plc, dropped more than 5% yesterday.
Crude oil slightly lowered after Russia relaxed its fuel export ban
It is important to remember that rising inflation, which is still well below the central banks’ target levels, is the primary driver of these market imbalances. In this sense, oil’s performance becomes highly relevant.
The price of crude oil corrected slightly lower after hitting a high of $92.40 last week. Even while there are still no very obvious indications, if this decline persists, it might represent the beginning of a change in the market's risk perception.
Last week, Russia’s surprise announcement about a ban on the export of gasoline and diesel, caused an upward spike in the price of oil.
However, Russia eased its decision yesterday by making certain changes to its ban. It relaxed limitations on the supply of fuel for particular ships and high-sulfur diesel, even though it maintains the ban on all types of gasoline and high-sulphur diesel.
High interest rates and the deep slowdown of the Chinese economy could be the trigger for a change in trend in oil. This change began at the end of June and has led the price of crude oil to increase by $25 in the last three months.
Oil monthly chart, September 26, 2023. Source: CAPEX.com WebTrader.
- Governments bonds fall on banks keeping interest rates higher for longer.
- US bond yields hit new highs with the 10-year bond above 4.50%.
- Germany's 10-year bond yield rose to the highest level since 2011.
- The stock market is pressured by a rise in market interest rates.
- European stock markets are also declining because of issues around China’s real estate sector.
- The price of crude oil fell as Russia loosened some of its fuel export ban measures.
- Changes in the price of oil could continue as interest rates continue to be high and the Chinese economy has slowed down.
Sources: Bloomberg, Reuters