The price of oil has reached its highest level in three years. The rate of increase is impressive and could be even higher if it were not for the Delta variant of the coronavirus.
WTI crude oil futures are settling around $73 per barrel and could reach a 10 percent increase in June. From January to June, crude oil rose about 50 percent, and there hasn't been a half-year like this in this market since 2009.
What could the increases be due to? National economies are recovering from the coronavirus pandemic, and demand for fuel is rising. OPEC's secretary-general said Tuesday that oil demand will increase by 6 million barrels a day this year, with 5 million barrels coming in the second half of 2021.
OPEC+ will meet this week and the group is expected to increase supply for August by about 550,000 barrels a day. API data showed U.S. crude inventories fell by 8.153 million barrels in the week ended June 25, versus market expectations for a decline of 4.460 million barrels.
Further increases in oil prices appear to be limited by the surge in COVID-19 cases in Asia and the rapid spread of the Delta variant of the coronavirus in some European countries. The UK has already reported 20,000 cases per day, which already alludes to figures for the fall of 2020.
Delta scares also in the currency market
The U.S. dollar index rose above 92 points in the Asian session on Wednesday, approaching the three-month high of 92.41 reached earlier this month. Investors seemed to turn to safety amid concerns over the spread of a highly contagious variant of the Delta virus and its impact on the global economic recovery.
On Tuesday, the Fed's Christopher Waller said the central bank may have to scale back its asset purchase program as early as this year to allow it to raise interest rates late next year.
Investors are awaiting Friday's U.S. payrolls report for June for clues on the direction of interest rates, when they will be changed and the pace at which it will happen.
Currently, the interest rate market is pricing in similar chances of a rate hike in both the U.S. and the U.K.,. In the Eurozone, interest rate hikes are hardly considered at all over a foreseeable time horizon. From this perspective, the euro may be under pressure. In such a situation both the EUR/USD exchange rate could head for lower levels, as well as the EUR/GBP exchange rate.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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