The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Oil prices continued their decline for a second consecutive day, as signs of potential diplomatic progress in Israel's conflict with Lebanon overshadowed expectations for a massive stimulus package from China.
West Texas Intermediate (WTI) dropped 0.3%, settling near $67 per barrel after Israeli Prime Minister Benjamin Netanyahu announced plans for a meeting focused on a diplomatic resolution to the Lebanon conflict. Earlier in the day, WTI had risen by as much as 1.7% on reports that China was considering 10 trillion yuan (about $1.4 trillion) in fiscal stimulus. Meanwhile, Brent crude prices fell 0.4%, settling around $71 per barrel.
The recent decline comes as the geopolitical war premium on crude has eased, particularly with Israel signaling openness to a temporary truce in Gaza. This shift has brought attention back to market fundamentals, as the oil market enters a critical period that includes a tight US presidential election and the planned unwinding of voluntary production cuts by OPEC+ starting in December.
According to Daniel Ghali, a commodity strategist at TD Securities, traders now believe that this phase of the Middle East conflict is winding down, shifting focus back to OPEC’s upcoming decisions on production cuts.
Market indicators also reflect a cooling of war-related concerns. The premium on bullish oil call options over bearish puts has decreased significantly, and a gauge of implied volatility for Brent has fallen to its lowest level in nearly a month.
Beyond geopolitical factors, the US Energy Department announced plans to add three million barrels of oil to its Strategic Petroleum Reserve. Additionally, a series of US economic reports due this week, including growth and employment data, could provide further insights into the Federal Reserve's potential rate cuts.
Oil Prices (as of Monday's close):
- WTI for December delivery: $67.21 per barrel (down 0.3%)
- Brent for December settlement: $71.12 per barrel (down 0.4%)
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