The impact of the hottest interest rate cut cycle

2022-07-31
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Impact of interest rate reduction cycle on international oil prices

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daily trend chart of US crude oil. (source: Southwest futures)

the interest rate cut cycle of the Federal Reserve

what words should be used to describe the trend of crude oil this week? Should we say global commodity market? For the market bulls, you are welcome to pay attention to Jinan new era Gold Testing Instrument Co., Ltd. which should be "the sky is falling apart and the earth is in danger", while for the bears, it is "the Phoenix is reborn and has achieved good results repeatedly". Let's review the international crude oil market this week: since the adoption of the 700billion rescue plan announced at the end of last week, the international crude oil price plunged sharply at the opening of this week, indicating that investors have completely lost confidence in the commodity bull market. In the five trading days, only this Tuesday's price rebounded slightly, and the other four showed an average decline of 3%-4% the day after the film was formed. Finally, on Friday, the settlement price of November light and low sulfur crude oil futures on the New York Mercantile Exchange fell below the $80 mark to $77.70 a barrel, down 10.3%, the lowest level in 13 months since September 10, 2007. With the global slowdown in economic growth, the oil market demand is facing a serious threat. On Friday, the International Energy Agency cut the daily demand growth of crude oil in 2009 by nearly 40% to 700000 barrels. This news has intensified the panic atmosphere in the market. Market bulls can no longer wait for the rebound of the market. They will close their contracts this weekend so as not to cause greater losses. Because senior analysts of DTN, a market information service, also said that if the global economy shows no signs of recovery, it is expected that the oil price will drop to the level of USD/barrel

on Wednesday, the six major central banks cut interest rates by 50 basis points. On that day, the international crude oil price only rebounded, but the mood of the haze on the whole economy soon affected investors. At last, the crude oil price fell on Wednesday, indicating that the joint interest rate cut still failed to restore the confidence of market participants. Since the American new century mortgage company filed for bankruptcy in April, 2007, the first round of financial turmoil caused by the subprime mortgage crisis began. Then in August last year, the American mortgage investment company, one of the top ten real estate mortgage companies in the United States, formally applied to the court for bankruptcy protection. In just four months, the bankruptcy of two large mortgage companies forced the Federal Reserve to start the cycle of interest rate reduction. From the first interest rate cut on September 18 last year to January 30 this year, the US federal funds rate has been cut for five consecutive times, from 5.28% to 3%, while the international oil price has surged from around $80 to $100 in five months; Then, in February this year, all the major investment banks reported hundreds of millions of losses. With the acquisition of Bear Stearns, one of the five major investment banks, the US financial market ushered in the second round of crisis triggered by subprime lending. In March this year, the Federal Reserve not only reduced the discount rate from 3.5% to 3.25%, but also cut the federal interest rate by 75 basis points to 2.25%. In less than a month, the Federal Reserve cut the interest rate again to 2%. These two large interest rate cuts pushed the oil price to a high of nearly $150; Since the international oil price reached a record high in early July, the "Fannie and Freddie" in the United States was taken over by the government, which also marked the beginning of the third wave of the subprime mortgage crisis. However, due to the pressure of high inflation, the Federal Reserve kept the interest rate at 2% at several interest rate meetings after April. The international oil price also fell all the way after the crack size and length reached the critical size to the high level on July 11. By the end of this week, the international oil price had fallen to the level at the beginning of last year

the financial crisis caused by the subprime mortgage has been stronger than one round. At present, none of the five major investment banks on Wall Street, which are well-known all over the world, exists. It is these more and more terrible news that forced the Federal Reserve to cut interest rates together with the other five major central banks on October 8. However, from the current observation, people still have a strong panic about the financial market, and the interest rate cut did not achieve the expected effect of stimulating the market. The obvious effect of the previous interest rate cuts is that the biggest and most destructive news in the financial market has not been exposed. However, after the accidents of several major investment banks, the operation of the currency and commercial paper market has almost stopped, and the interest rate gap has been expanding. At this time, the interest rate cuts can not solve the main problems of the market. Now the United States is facing not only a liquidity crisis, but also a solvency crisis. As economists have said, there is still room for oil prices to fall before the US economy shows no signs of recovery

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