Hello, this is FX Mama ٩( ᐛ )و♪
This time, I will explain the background behind the significant movement in crude oil prices in a way that is easy for FX beginners to understand♪
The key points are President Trump’s waiver of Russia-related sanctions and tariffs, and the possibility that the recovery in crude oil exports through the Strait of Hormuz was only temporary.
When crude oil prices drop or rebound, it makes you wonder, “In the end, is it going up or down?” (；´∀｀)
To understand the market, it is important to organize not just the price, but why it was sold and why it was bought back.
To begin with, what happened in the crude oil market this time?
U.S. President Trump waived the application of major Russia-related sanctions and tariffs that were scheduled to be implemented.
This led to the view that sales channels for Russian crude oil would be maintained and that supply shortages would ease.
As a result, investors who had been anticipating a rise in crude oil prices sold to lock in profits. On the other hand, when the price dropped, dip-buying also occurred, leading to a temporary rebound.
However, in the end, selling pressure became dominant again, and the price closed lower.
To summarize the flow, it is as follows:
Expectations for maintained supply of Russian crude oil → Crude oil selling → Buying back at low prices → Selling pressure becomes dominant again
Just because policy changes, it doesn’t mean that crude oil supply will immediately increase significantly. Even so, prices can move just on the expectation that “supply might increase.”
① Why does President Trump’s waiver of Russian sanctions lower crude oil prices?
Crude oil prices are greatly influenced by the outlook on how much supply can be provided globally.
Crude oil is a raw material for gasoline, diesel, kerosene, jet fuel, etc., and is used in a wide range of fields such as transportation and manufacturing. Therefore, when supply decreases, prices tend to rise.
If Russian crude oil continues to flow into the market, concerns about supply disruptions will ease.
“If there isn’t going to be that much of a crude oil shortage, maybe I don’t need to keep buying at the current price?”
Because of this way of thinking, it becomes easier for selling movements to occur.
However, the waiver of sanctions does not necessarily mean a significant increase in global supply. Actual export volumes are also influenced by transport routes, buyer demand, insurance and settlement, and regulations in each country.
In the market, not only actual supply volumes but also future supply outlooks are priced in.
② What is profit-taking selling?
Profit-taking is the act of selling a financial product you hold to turn unrealized gains into actual profit.
For example, suppose you bought crude oil at $90 per barrel and it rose to $100. If you sell at this point, you can lock in a $10 profit.
When prices rise, more investors think, “I should secure my profits now.” Especially if prices have surged due to concerns about supply shortages, selling can easily occur even if the situation improves only slightly.
However, just because profit-taking selling occurs, it doesn’t mean the decline will necessarily continue. If there are many buyers, it will rebound, and if selling exceeds buying, the decline will continue.
It is important not to judge based only on news, but to also check actual price movements♪
③ Beware of supply shortages for diesel fuel, etc.
In this news, the supply crunch of diesel fuel and other products is also becoming an issue.
Diesel fuel is used for trucks, buses, construction machinery, and agricultural machinery. If a supply shortage occurs, it could affect not only fuel prices but also logistics costs and production costs.
What to be careful about here is that crude oil and petroleum products are not the same.
Crude oil is refined at refineries to become gasoline, diesel, etc. Therefore, even if crude oil supply is secured, diesel may become scarce depending on refinery operating conditions, transport capacity, product inventory, and regional demand.
Conversely, even if crude oil prices drop, gasoline and diesel prices do not necessarily become cheaper immediately. This is because refining and transportation take time, and taxes, exchange rates, and distribution costs are also involved.
④ What is the Strait of Hormuz? Why does it affect the crude oil market?
The Strait of Hormuz is an important maritime transport route connecting the Persian Gulf and the Gulf of Oman. It is essential for transporting crude oil and petroleum products exported from oil-producing countries in the Middle East.
If navigation in this strait is hindered, it could become difficult to transport crude oil out of the Middle East, potentially intensifying global supply anxiety.
Even before the actual supply volume decreases, prices can rise just on the concern that “there might be a crude oil shortage in the future.” This is the mechanism by which geopolitical risks such as wars and conflicts between nations affect crude oil prices.
However, even if transportation recovers temporarily, it does not necessarily mean it will last for a long time. If export volumes or ship navigation deteriorate again, supply anxiety could intensify, potentially pushing up crude oil prices.
⑤ Did exports from the Middle East plummet from 20 million barrels per day to 8.5 million barrels?
In the news, citing data from the research firm Kpler, it is introduced that export volumes from the Middle East region reached a scale of 8.5 million barrels per day on a 7-day average, a sharp drop from about 20 million barrels the previous week.
By simple calculation, this is a decrease of about 57.5%.
However, this is the export volume from the Middle East region, and it does not mean that the total global crude oil supply has decreased by 57.5%. It is necessary to consider exports from other regions, global production, and inventory drawdowns.
Even so, the information that export volumes have decreased significantly becomes material for investors to be wary of supply shortages.
It is important whether this decrease is temporary or will continue in the future. If export volumes recover, it may cap the upside of prices, and if low levels continue, it may become a factor supporting prices.
⑥ Crude oil prices dropped to $96.72, then rebounded to $99.71!
This crude oil futures price dropped to $96.72 in after-hours trading. After that, dip-buying occurred, and it rebounded to $99.71, but it was sold again and closed lower.
Behind the decline was the view that sales channels for Russian crude oil would be maintained and concerns about supply shortages would ease.
On the other hand, when prices drop, investors who think “I’ll buy now while it’s cheap” also appear. This is dip-buying.
However, just because it rebounded, it doesn’t mean the decline has ended. Conversely, just because it dropped once, it doesn’t mean it will continue to fall.
It is important to check both the material and the price movement to see which is stronger, selling or buying.
⑦ What impact does a drop in crude oil prices have on FX?
Crude oil prices can also affect exchange markets such as the U.S. dollar, Japanese yen, and Australian dollar.
However, it is not a simple relationship where “if crude oil drops, the yen must strengthen” or “if crude oil rises, the Australian dollar must strengthen.” Interest rate differentials, economic indicators, central bank policies, and investor risk appetite are also involved.
Impact on the Japanese yen
Japan imports most of its energy resources. If crude oil prices rise, import costs increase, which may affect the trade balance, corporate costs, and prices.
Conversely, if crude oil prices drop, a reduction in import costs can be expected.
However, if U.S. interest rates are high, the dollar may be bought against the backdrop of the Japan-U.S. interest rate differential. It is dangerous to judge the direction of the dollar-yen based solely on crude oil prices.
Impact on the U.S. dollar
The United States is a major crude oil producer. Crude oil prices affect the U.S. economy through the energy industry and inflation outlooks.
If concerns about rising prices intensify due to high crude oil costs, the dollar may be bought on the view that the Fed’s rate cuts will be delayed. On the other hand, high crude oil prices can also pressure consumption and corporate activity, leading to economic concerns.
Impact on the Australian Dollar
The Australian dollar is a commodity currency, but Australia exports not only crude oil but also iron ore, coal, and natural gas.
When looking at the Australian dollar, check the Chinese economy, iron ore prices, Reserve Bank of Australia (RBA) policy, employment, and prices.
If lower crude oil prices reflect concerns about the global economy, it could weigh on the Australian dollar, but if the decline is due to easing supply concerns, it does not necessarily mean the Australian dollar will fall.
⑧ The relationship between crude oil prices, inflation, and interest rates
When crude oil prices rise, costs for gasoline, diesel, jet fuel, and logistics increase, which can lead to higher prices.
If inflation is seen as prolonged, views may spread that central bank rate cuts will be delayed and interest rates will remain high. Such changes in interest rate outlooks also affect exchange rates.
On the other hand, lower crude oil prices are a factor that eases inflationary pressure.
However, central banks do not decide policy based on crude oil prices alone. Wages, service prices, employment, and personal consumption are also important.
Be aware that it is not always the case that “because oil has fallen, interest rates will fall immediately.”
⑨ Future checkpoints for FX Mama to watch
1. Will export volumes through the Strait of Hormuz recover?
If export volumes recover stably, supply concerns will ease, which may cap the upside of crude oil prices. Conversely, if exports decrease again, it could lead to price increases.
2. What will happen to the sale of Russian crude oil?
Check how much the exemption from sanctions and tariffs actually affects transportation and trading. It is important to look at actual export volumes, not just policy announcements.
3. Will crude oil prices continue to fall?
Since it rebounded to $99.71 after falling to $96.72, we can see that selling and buying are intersecting. Do not jump to conclusions about the trend based on a single rebound or decline.
4. How will the outlook for U.S. prices and interest rates change?
Check whether changes in crude oil prices affect inflation or the Fed’s policy outlook, along with U.S. price statistics, employment statistics, and U.S. Treasury yields.
5. Is the entire market avoiding risk?
When vigilance regarding the Middle East situation intensifies, stocks and commodity currencies may be sold. However, which currency is bought also depends on interest rates and capital flows.
⑩ What FX Mama values most is capital management over guessing the outcome!
Learning from the news is important, but you cannot perfectly predict future price movements.
Crude oil prices may rebound after falling, or they may fall again after a rebound. If you panic and increase your trading volume when the market moves against your prediction, your losses could increase.
What is important is to maintain a state where you can continue trading without strain, rather than rushing for profit.
Before trading, check the following points:
• Is the trading volume too large for your capital?
• Can you withstand an increase in unrealized losses?
• Do you have enough capital to prepare for sudden market changes?
Even if big news comes out, you don’t necessarily have to trade. In a market you don’t understand well, waiting and watching is also a fine form of risk management♪
Thorough capital management does not mean you can completely prevent losses. That is why you should keep in mind having sufficient capital and reasonable trading volumes.
Not a one-shot reversal, but steady and calm. I want to stick to my own rules ٩( ᐛ )و♪
Summary: The crude oil market is a tug-of-war between “expectations for supply improvement” and “vigilance against supply shortages”!
In the current crude oil market, the exemption from the application of Russia-related sanctions and tariffs has led to a widespread view that the supply of Russian crude oil will be maintained, triggering profit-taking sales.
On the other hand, concerns remain regarding the tightening supply of diesel fuel and the uncertainty of export recovery through the Strait of Hormuz.
As a result, crude oil prices fell to $96.72 before rebounding to $99.71, showing unstable movement as they declined once again.
Moving forward, let’s pay attention to the following points:
• Whether crude oil export volumes from the Middle East region will recover
• How the sale and transportation of Russian crude oil will change
• Whether concerns over supply shortages will ease
• Whether crude oil prices will impact U.S. inflation and interest rate outlooks
• Whether risk aversion will strengthen in the foreign exchange market
Crude oil prices have the potential to affect not only the energy market but also inflation, interest rates, and exchange rates. However, it is important not to jump to conclusions about market direction based on a single factor.
The market doesn’t move to suit our convenience (lol).
That is precisely why, rather than trying to predict everything perfectly, we should focus on money management that can handle any price movement.
Don’t rush, don’t overdo it, just keep at it steadily♪
Let’s continue to face the market today while valuing our own rules٩( ᐛ )و♪
