Supply shortage should support oil price

In our biweekly publication ‘Monitor' provides you with a structured overview of current capital market developments.

Current market commentary

Equities and bonds have never fallen simultaneously for three consecutive quarters. That has changed this year. The third quarter was the most challenging from a multi-asset perspective because commodity prices also fell. So in contrast to Q1 and Q2, there was no hiding. This was driven by the extremely restrictive central banks and the resulting growing likelihood of a recession. Above all, the Fed's particularly hawkish monetary policy is increasingly leaving its mark on the financial markets in the form of a strong USD. Against this backdrop, there has recently been an accumulation of calls for central banks to pay more attention to financial market stability. However, the Fed is likely to take some time with this – not least in view of the continued solid labour market figures last Friday. We therefore remain neutral on equities, with an underweight in US equities, which remain expensive, are not pricing in a recession and tend to suffer from the strong USD.

Short-term outlook

With the first earning numbers from the major US banks this week, the Q3 reporting season is gaining significant momentum. More than 65% of companies in the S&P 500 and 30% of companies in the Stoxx 600 by market capitalisation report by the end of October. Markets are eagerly watching for the impact of consumer weakness and inflationary pressures. From 16 to 24 October, the Party Congress will be held in Chi-na. Possible news on the handling of Covid-19 is likely to keep markets busy. This Wednesday, industrial production data (Aug.) for the Eurozone and US producer prices (Sep.) will be released. This will be followed on Thursday by the crucial US inflation data (Sep.). US retail sales (Sep.) and consumer confidence (Oct.) as well as China inflation data (Sep.) will be released on Friday. The German ZEW index (Oct.) as well as the US housing market data will be announced the following week.

Supply shortage should support oil price

Source: Bloomberg, DOE Time period: 30/03/1983 – 07/10/2022
  • The oil price fell significantly in Q3, driven not only by recession concerns but also by the release of strategic oil reserves by the US – at 180 million barrels since the beginning of the year, the largest sale ever. However, as this is now coming to an end and OPEC+ recently decided to reduce its production quotas by 2 million barrels per day, supply is likely to tighten noticeably.
  • Consequently, we believe the downside potential for oil in a mild recession is limited. In fact, the oil price is likely to rise over the next few years.