Energy under pressure ahead of FOMC

Energy prices and stocks have been weighed down in recent weeks with a range of soft macroeconomic data, especially the numbers out of China.

An oil pump outside Watford City, North Dakota, U.S
Source: Bloomberg

Among those to watch are oil prices. Brent crude has been drifting lower over the past few months and falling to two-year lows.

It’s lost nearly 15% since its recent high of $115 per barrel in June. The move was partly catalysed by a slew of data from China suggesting a slowdown in its economy.

This morning, another set of Chinese data came in below expectations. Foreign direct investment in August fell by 14%, below the market consensus forecast of a 0.8% rise.

This was on the back of a 16.9% drop in the prior month, marking the first back-to-back drop of more than 10% since 2009 and the lowest in four years.

The week had already kicked off with an overall weaker market sentiment on the back of a round of soft Chinese data over the weekend. Industrial production and retail sales figures were both disappointing, with factory output at its slowest pace in six years.

The bleaker outlook has also been a drag on energy related equities. The global energy sector has been the worst performer over the past month, particularly the oil and gas companies.

We could see a further downside ahead as the FOMC meeting gets underway. Any signs of an earlier-than-expected rate hike could lend to more downwards pressure.

The FOMC interest rate decision will be announced on Thursday morning (02:00 SGT), and we could start to see investors positioning themselves ahead of this.

The subsiding of geopolitical risks, at least out of the headlines, could also mean some pressure on oil-related plays such as Santos and Oil Search.

Brent crude currently is on a downtrend and we can see some support at the $97 level. Over the next few days, this level could be tested and is likely to make a strong move once the FOMC releases its statement.

Brent Crude Chart
Click to enlarge

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