Oil Goes into Surplus, and Markets Prepare for the Fed's Verdict

15 Ara 2021

The markets were not up for fun yesterday. Traditionally, there were enough reasons for worrying. Omicron made it to China, manufacturing inflation in the United States showed the highest growth on record, and Germany, according to forecasts, will slide into recession by the end of the first quarter of 2022.

And all this news came out against the background of waiting for the Fed's decision following the next meeting of the FOMC. Considering that consumer inflation in the United States is at its maximum since 1982, and Powell decided to abandon the doctrine of inflation “temporality”, there is reason to expect an official change in the vector of monetary policy. The whole question is in what form it will take place.

The softest option provides for concern in words, but no action, that is, the rate is unchanged, as well as the pace of tapering. The omicron can act as the basis (cover) for this option.

A more likely scenario, under which the markets have been discounted since the beginning of this week, is an acceleration of tapering, but without additional verbal interventions in the form of the Fed's readiness to raise rates earlier than planned.

Well, the most aggressive of the real options is the acceleration of tapering and the announcement of the first rate hike, say, in April-May, amid deep concern over inflation.

In fact, only the first option gives the US stock market a chance to return to growth. Both of the remaining options are reasons for further declines or even sales.

How it will actually be, we will see already tonight, and tomorrow we will discuss.

In the oil market, buyers have a hard time. The United States is preparing to sell 18 million barrels from its strategic reserves (the sale is scheduled for December 17), the EIA is lowering its forecasts for the growth rate of oil demand in both 2021 and 2022, and S&P Global Platts Analytics predicts that in In 2022, the supply in the oil market will exceed demand. With such a background, I don't want to buy oil because of the word “absolutely”.