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The Energy Market Outlook - Key Considerations

Disclaimer:

Nothing contained in the following content constitutes an offer, solicitation, or recommendation regarding any investment management product or service, or the offer to sell or the solicitation of an offer to buy any security; The following content is purely for information only and is based on information available at the time it was created. It does not take your financial situation or goals into consideration, and may not be suited for you.

The energy market has been under pressure due to concerns about the debt ceiling and recession. However, the market has already priced in the current expectation of mild recessions. We anticipate that the debt ceiling will either be removed or extended through a bipartisan bill. Unless a significant recession occurs, the current downward trend in the energy market will likely end soon.


Supply Side

Saudi Arabia and OPEC+ are unlikely to significantly increase oil output, given that their economies rely heavily on it. Other supply-side factors remain relatively stable. The US is also purchasing reserves from Russia through India.


Demand Side

China and the US have been replenishing their strategic oil reserves.


China’s demand for oil continues to grow. The recovery of the manufacturing sector takes time and it is uncertain if the supply chain will fully recover. However, oil demand has significantly increased since March of this year, and "the resilience and diligence of the Chinese people should not be underestimated".


The summer season across Europe and the US, combined with recovery and reopening in Asia and OPEC cutting production, will also positively impact the market.


Debt Ceiling

The consequences of not raising the debt ceiling would be unbearable for both political parties, so the pressure currently facing the energy market due to concerns about the debt ceiling is expected to ease.


Democrats will wait for a meeting between Biden and congressional leaders on May 9th before deciding whether to pursue a clean debt ceiling increase without spending cuts. However, Democrats are expected to advocate for a full two-year extension.


As we approach May 9th, it also means that most of the concerns have already been priced in.


Market Mechanics

The energy market is significantly oversold in the current breadth cycle and has already taken into account many negative factors that could lower crude oil prices. This includes concerns about the debt ceiling and a potential recession. Multiple technical indicators have shown signs of exhaustion.


Disclaimer:

Nothing contained in the following content constitutes an offer, solicitation, or recommendation regarding any investment management product or service, or the offer to sell or the solicitation of an offer to buy any security; The following content is purely for information only and is based on information available at the time it was created. It does not take your financial situation or goals into consideration, and may not be suited for you.


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