Crude oil dominated yesterday

Yesterday's day was dominated by reports on supply on the oil market. Saudi Arabia and Russia decided to extend voluntary production cuts until the end of the year. The Brent barrel and WTI reached multi-month highs. The price is at its highest level since November 2022. Concerns have grown that higher energy prices will push inflation up again in the longer term. The dollar was gaining in value and the yields of American US bonds were higher. The euro lost after weak PMI data.

Oil production cuts

Saudi Arabia extended on Tuesday voluntary cut of oil production by 1 million barrels a day by the end of the year, the state-run Saudi Press Agency reported. This reduction will bring oil production in Saudi Arabia to nearly 9 million barrels a day in October, November and December, and will be reviewed monthly. Recall that Riyadh first applied a reduction of 1 million barrels in July and has since extended it every month. Arabia's decision was not the only one. The increase in the "black gold" quotations also resulted from the declaration of Russian Deputy Prime Minister Nowak that he would extend the export limitation by 300 tons. barrels per day until the end of December 2023.

These cuts are referred to as voluntary because go beyond official OPEC+ policy, which obliges every non-excluded member to participate in production quotas. The secretary-general of the cartel indicated that resorting to voluntary reductions was beyond decisions OPEC + it does not imply divisions in political views within the cartel.

Brent crude oil chart (CFD), D1 interval, source: Tradingview

Either way, Saudi Arabia is in a difficult position because of its the economy is heavily dependent on oil. Of course, the losses incurred by reducing production and thus lower sales volumes will be partially compensated by higher raw material prices. Cheaper oil in the first half of this year contributed to a significant decline CBA Saudi Arabia.

The dollar is the highest since March 2023

Yesterday's events caused that fears about rising inflation on a global scale increased. This causes the market to start speculating again The Fed has not ended the monetary tightening cycle. As a consequence, US debt yields rose (but not exaggeratedly) and the dollar strengthened. The USD index "climbed" to the highest levels since March this year.

The Eurodollar fell again yesterday and approached the level of 1,07. On the one hand, this was due to the strength of the dollar, but it was also due to the weakness of the euro. Discounts accelerated in the morning, when we got to know the final PMI data for Europe, which disappointed with poor results across the line. Poor economic data favor a pause in interest rate hikes. On top of that, comments were made yesterday by the ECB's chief economist, Philip Lane, who admitted that although inflation in the euro zone remains high, the underlying price pressure is weakening. Let us remember that the blackout period is ahead of us, because next week the ECB will decide what to do with the monetary policy on the Old Continent.

Source: Łukasz Zembik, OANDA TMS Brokers