The latest oil-price shock rippling through the economy is a refining crisis — not a crude crisis
The recent oil-price shock is evolving into a refining crisis rather than a crude crisis, indicating systemic pressures within product supply chains. This points to a mismatch in processing capabilities amid fluctuating crude prices, emphasizing that while crude supply may be stabilizing, the broader implications for refined products could stifle economic recovery. This crisis is particularly significant as it may disrupt inflationary trends and ultimately affect currency valuation and central bank policies.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). MarketWatch's framing on the refining crisis suggests potential upward pressure on the euro amid concerns over inflationary risks related to product supply shortages.
How firms align
In this context, JPMorgan's target of 1.10 aligns with the sentiment that inflation concerns could lead to a stronger euro, while BofA's more cautious stance with a target of 1.04 reflects a bearish outlook on the eurozone's growth amid refining challenges. [PUBLISHER]'s analysis resonates closely with this divergence in expectation across firms.
What the data shows
According to recent forecasts, the imbalance between crude oil supply and refining capacity may lead to upward adjustments in inflation expectations throughout Europe. This situation mirrors insights from /research/refining_crisis impacting currency markets as supply chain strains persist.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Refining crisis may outweigh crude supply improvements for inflation trends.
- 02Watch EUR/USD reaction to energy sector disruptions — current target at 1.075.
- 03Risk of central bank tightening grows if inflation from refining persists.
- 04Heightened volatility in oil-related currencies expected in the near term.
Market implications
Investors should monitor the EUR/USD level as the refining crisis unfolds, particularly if it leads to a spike in inflation data that could amplify central bank hawkishness. Key calendar events include upcoming CPI releases for further direction on inflationary pressure.
Risks to this view
Should crude supply stabilize significantly faster than refining capacity, this could undermine inflationary pressures, leading to a potential reversal in the outlook for the euro. A drop below 1.04 in EUR/USD would signal a shift in trader sentiment.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.35
Sources & References
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