Is Oil going down the drain?

8 March, 2017

The Oil prices continue to be under the strong Dollar pressure, despite the optimistic IEA forecast on the world energy consumption and OPEC striving to deliver more production cuts. WTI benchmark, with April delivery, jumped to $53.50 per barrel during the New York session on Monday, but quickly erased the upturn, as the markets do not have clear catalysts for growth. An advance on the rumours seems unlikely. Brent holds around the level of 56.00 in anticipation of the API report on commercial crude oil inventories in the US.

It is obvious that since December 2016 the Oil market has entered a stabilisation phase, where prices lost a clear trend turning towards a sideway mode. The International Energy Agency issued a report stating that one-third of the increase in OPEC cartel production will come from Iraq and Iran. Iraq, who has ended a civil war, will intensively restore the production in the south parts of the country, while Iran, now free from US sanctions, will search for investors to revive the Oil sector. Together with the growing demand for energy, the IEA report looks optimistic and is unlikely to have a significant bearish impact on the prices.

The RBA left the interest rate unchanged at 1.5%, despite this the Australian Dollar strengthened against the US dollar by 0.65%. The extension of the easing program creates a risk of overheating for the real estate market, but it is necessary to accelerate the consumer inflation. We can say that the growth rate was not been so impressive recently (0.5% in January). The GDP grew 1.1% in the last three months of 2016, primarily due to the rising energy prices and increasing consumption in households. However, increased household expenses were not caused by salary growth, but by drawing savings, so the prospects for a sustainable growth remain hazy.

The Euro takes its time with growth attempts, despite the speculation that the ECB President Draghi may hint towards tapering the easing program at the meeting on Thursday. EUR/USD rolled back below the level of 1.06 after a jump to 1.0635 on Monday, questioning the glaring growth of the European currency on the ECB rumours. The Pound is holding back a bearish fervour near the level of 1.22, as investors preferred to wait for the Brexit facts before deciding on the direction.

Among other major currencies, there was a slight lull, USD/JPY is trading near an 114 level, the pair USD/CHF rose slightly above the level of 1.01, the Canadian Dollar slowed down declines against the US Dollar, being near the January support of 1.34.

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