High energy prices have an aggressive and pervasive threat to economies globally. In Europe, markets, economies and consumers have been particularly aware and sensitive to gas prices. Recent developments surrounding Germany and Nord Stream 2 have only served to develop tight energy commodity prices further. Rising commodity prices are a structural source of inflation and rising energy prices in your home and for your vehicle have a material change on the backdrop of the economy.
This week we saw a historic release of oil reserves from the Strategic Petroleum Reserve in the United States. The Department of Energy has announced that it will release 50 million barrels of oil from this reserve in order to offset the constrained supply of oil on markets today. One of the catalysts for the decision is rising prices at petrol pumps. Oil released from the Reserve will not only take weeks and even months to be taken up by the market to alleviate price pressures. It will also be far longer in turn before refineries are apply to supply gasoline to relieve pressure on prices at the pumps.
It is quite remarkable to consider in isolation that the US President announces the historic release of reserves from the Department of Energy’s stockpile and the price of a barrel of oil in the US (WTI) and Europe (Brent) rise. As with many price movements, the answer comes down to context and expectations. Alongside the fourth wave of Covid in Europe and a strong US Dollar, the prospect of a release of oil reserves in the US had been on the market’s radar for a while. From its peak in late October, Brent Crude prices had already lost 10%. When Biden announced 50 million barrels of oil were to be released for delivery in mid-late December, the value of short-dated Brent crude contracts rallied by a couple of Dollars per barrel.
The impact in markets has been for commodity currencies to rally. The Canadian Dollar in the past two trading sessions has managed to gain ground against the US Dollar which itself has continued to gain traction. Key oil-exporter Norway also saw its currency buck (if only for one day) what has been a cumulative losing streak in excess of 7% versus the Dollar this month.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Reckoning Days
Charles Porter
Tue 14 Jan 2025
Reckoning Days Despite it being less than one week until Donald Trump’s inauguration, markets are still fixated on the evolution of the UK’s bond market and its currency. The Chancellor may well have been hoping for some distracting headlines from the incoming President-elect. Unfortunately for her, those that have come from the Trump administration and […]
Daily Brief – Markets In Reverse – Inflation to the Rescue
Charles Porter
Thu 16 Jan 2025
Markets In Reverse – Inflation to the Rescue Particularly in the case of the beleaguered GB Pound, it may be time to do away with the textbook. Instead of attracting further demand as UK yields have risen, GBP has registered one of its worst starts to a year on record. It is a narrative of […]
Daily Brief – Germany
Humphrey Percy
Fri 17 Jan 2025
Germany In just 6 weeks Germany will vote and while Chancellor Scholz thinks that he can win, most others are equally convinced that he cannot based on his economic record alone that has seen the German economy contract by 0.3% in 2023 and by an estimated 0.2% in 2024. That on top of his ability […]
