Oil Prices Rise On The Back Of Middle East And Libya Tension

In a week with just a few significant economic data releases as markets are still in summer mode, a surge in oil prices drew the attention of investors and market analysts.

In the US, San Francisco Federal Reserve President Mary Daly said “the time is upon us" to cut interest rates with a 25 basis points (bps) reduction being the most likely move. However, Daly also suggested that “if we should see deterioration, or any signs of weakness, then being more aggressive to ensure that we don't see that, would be appropriate."

Oil Prices Pick Up

Geopolitical tensions in the Middle East almost always play a crucial role in how oil prices rise or fall. However, this time it was also Libya that made oil prices surge by 3% on Monday  as Libya's eastern-based government announced the closure of all oil fields halting production and exports.

For readers unfamiliar with Libya’s political circumstances, the eastern-based government in Benghazi is not recognised by the international community but holds the most important oil fields in the country. Media sources said that the reason behind the decision is the dispute of the Benghazi government with the authorities based in Tripoli regarding managing the revenue coming from oil sales and the central bank.

IMF: BoJ Raising Rates Is A Good Development

The Bank of Japan (BoJ) has drawn analysts’ attention in the last few weeks as it has started tightening its monetary policy after years of having borrowing costs set in all-time lows.

Delivering a speech at the Jackson Hole Symposium, the International Monetary Fund (IMF) chief economist Pierre-Olivier Gourinchas said that the Fund’s economists believe that hiking interest rates is a good development for the Japanese economy. Gourinchas added that “certainly in our assessment, there is scope for further normalization of monetary policy going forward, and policy rates to increase gradually for some time.”

Sharing his forecast, the IMF’s chief economists suggested that “what the BOJ is trying to engineer is a realignment of inflation expectations. We're expecting that as inflation expectations remain stable at their new level close to 2%, the BOJ will start normalizing policy rates.”

Commerzbank: More Bad News For German Economy

The Ifo survey regarding business climate in Germany for the month of August was less optimistic than expected. The Ifo survey showed that business climate fell from 87.0 to 86.6 in August, continuing the downward trend that began in the spring.

Commenting on the survey’s results, Commerzbank’s analysts said that “this means that the indicator's increase in the first few months of this year has proved to be a false signal. A recovery of the German economy in the coming months is becoming increasingly unlikely.”

Reviewing the German economic conditions, the German bank’s economists noted that “the adjustment to the higher interest rate level may take longer than expected and the uncertainty among consumers seems to be lasting longer. Added to this are the numerous structural problems in the German economy, which are slowing down the underlying momentum of the economy.” The report concludes with the following forecast: “the German economy will barely grow in the second half of this year and will at best stagnate for the year as a whole. We expect a meagre increase of 0.5% for 2025.”

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