Crude oil prices weakened in early week trading (13/February). At the time when this news was written, Brent oil prices were down by 0.94 percent at $85.57 a barrel.
Meanwhile, based on the data, WTI oil was slumping by 1.02 percent at $78.93 a barrel. Late last week, Russia announced their plan to cut oil production by 500,000 barrels per day (bpd) that will come into effect next month.
This announcement is enough to grab the attention of market participants considering Russia's position as the third largest oil producer in the world. This country has an important role so far.
In addition, Russia's move to limit oil production is a form of retaliation. It is especially against the Western sanctions that limit its oil exports until early 2023.
Oil Price Rally didn’t Last Long
That situation underscores the turbulent geopolitical conflict. However, the oil price rally that had occurred last weekend did not last long. Oil is actually likely to weaken at this time.
This was because this possibility has been fully calculated since some time ago. The weakening of oil prices as people could see today reflects that market participants are beginning to realize russia's production cut plans.
People realize that these have actually been taken into account before. This statement was said by the ING commodities analyst Warren Patterson
A similar opinion was also expressed by Stefano Grasso, 8VantEdge Portfolio Manager in Singapore. According to Grasso, a production cut of 500,000 bpd will bring Russia back in line with OPEC+ policy.
China’s Economy also Brings an Effect
After all, Russia has been over-exporting crude oil and passed the quota set by OPEC. Thus, this plan to reduce Russia's output has little effect on the world supply side.
Market attention is now more focused on the news of pipeline maintenance at a number of Asian and United States oil refineries. They are waiting for the updates from that sector.
In addition, oil demand from Asia (especially China) and OPEC's maneuvers regarding its production policy are catalysts that market participants pay more attention to.
Some experts expect oil prices to likely return to the $100 per barrel range this year if there is a significant rise from China. The optimism is rooted in evidence of China's economic recovery after escaping the pandemic.
Meanwhile, US Dollar is Strengthening
The US dollar index or also known as DXY crawled up to the 103.80s range in Monday's trading (13/February). The greenback began to squirm after the release of Michigan consumer sentiment data in the New York session last week.
Then it was continued due to the United States inflation expectations. The University of Michigan (UoM) on Friday reported that the consumer sentiment index from the results of an early February 2023 survey showed an impressive increase.
It was from 64.9 to 66.4, or exceeding the consensus estimate of only 65.0. Respondents' assessment in related to economic conditions currentcy also rose from 68.4 to 72.6.
Inflation Expectation Rose by 0.5%
Meanwhile, inflation expectations for the year ahead rose from 3.9% to 4.2%. Ahead of the release of tomorrow's US inflation report, the UoM report provokes speculation.
Consensus currently expects the US inflation report to show a 0.5% increase in the monthly basis or month over month. However, then it decreased from 6.5% to 6.2% on an annual basis or year on year.
The UoM report sparked speculation for higher-than-expected actual data, particularly for the core inflation ex-housing component. Higher actual inflation data could prompt market participants to clear speculation.
That is especially a Fed rate cut this year. That is why; dollar was strengthening again in the market. EUR/USD was held near a one-month low of the 1.0680s, further away from the multimonth high reached in early February.
Meanwhile, the GBP/USD fell again by 0.1 percent amid the shadow of a UK economic recession. USD/JPY jumped by 0.75 percent to 132.40s as rumors continued to simmer around the succession of the leadership of the Japanese central bank (BoJ).
