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Interviewed by Dubai TV, Mohammed Hashad, Head of Research and Development Department at Noor Capital and member of the US Society of Technical Analysts, commented on the latest developments of the financial markets; and most notably oil and the upcoming Fed’s policy decision.
First: Oil
Asked whether the unmistakable surge of oil prices today, hitting, $120 per barrel, could mean higher demand for oil in general, Hashad mentioned that several factors do contribute to the surging prices of oil, and chiefly the current prevalent confusion regarding the Russo-Ukrainian war. Hashad also noted that there is a dominant idea across the markets, namely the decline in oil supply, which always allows for the trend of oil prices to surge, in addition to China’s return to normal life after two-month covid-linked lockdown.
With regard to the decision by OPEC+ to raise production output, and the reason why such a decision has not yet caused oil prices to retreat, and whether this could be deemed as a real indicator of robust demand, Hashad said that he believes that the main reason why oil price has hiked is not that OPEC+ increased its output by almost 648,000 barrels, rather, it is that the markets have digested and interpreted that 648,000 barrels was not sufficient to meet the market’s anticipation and the market’s trust in the capability of OPEC’s production policy can control price hikes. Hashad also suggests that the $125 to $130 levels are the expected targets unless markets see any trading below $110 per barrel.
Furthermore, traders and market participants currently talk about Venezuelan crude oil, regarding to what extent this could put pressure on oil prices; Hashad believes that the move will not put pressure on prices, but its impact, if there is any, will be long-term, because it would take the Venezuelan oil many years to return to the market, and there is a persisting need to make huge financial investments in excess of $250 billion before Venezuela could return to produce only nearly 2 million barrels.
Second: US Federal Reserve Policy Preview
Is it certain that the Fed will raise interest rates by 50 basis points despite the prevalent concerns about recession in the first quarter of 2022, so, Hashad believes Fed Chair Jerome Powell, as well as policymakers, will continue to raise US interest rates until the end of 2022 and markets could witness further hikes in 2023. The latest jobs, employment data was robust and came in well with 390,000 jobs added by the US economy, supporting the Fed’s view with a tougher tightening policy in the upcoming months in an effort to address and cool down high inflation levels.
Third: China, US Tariffs
On the other hand, the US Secretary of Commerce talked about raising tariffs on China, asked whether there will be a rapprochement between China and the United States in the near future in light of the latest official statements, Hashad has noted that Joe Biden’s policy is different from Donald Trump’s and there may be future cooperation between China and the United States, particularly since the current situation needs more cooperation between major economies and markets are poised to witness decisions to eliminate or at least to ease Trump’s ear restrictions on the Chinese economy and even the European economy.
