Oil prices stabilize after entering bear market territory

2 August, 2016

Oil prices stabilize after entering bear market territory

Oil prices recovered slightly early Tuesday, after both major benchmarks WTI and Brent entered a bear territory on Monday, falling by more than 20% from their June peaks. 

The same factors which dragged prices to a 13-year low in Jan 2016 are back in play, it’s all about the oversupplied market.  The rebalancing of supply and demand which was expected to happen in the second half of the year seems to have pushed out towards 2017 as disrupted supplies resumed, OPEC’s output expected to increase to record highs, and rig counts continued to rise in the U.S. 

The discount provided by Saudi Aramco for its Arab Light crude oil for Asian customers by $1.30 a barrel reflects the ongoing aggressive competition for market share with other big producers within the cartel such as Iraq and Iran, and if similar actions are taken by rivals we expect more downward pressure on prices in the short run. 

Pessimism amongst speculators was also reflected in latest CFTC data, which showed that bearish positions for WTI rose to record highs and bullish bets dropped to their lowest levels in 5 months. However, I continue to see long-term opportunities as prices drift below $40 a barrel with a potential to rise back to June’s high around $50 in Q4 2016 as we get closer to rebalancing in supply and demand. 

In the commodity currencies space, AUDUSD fell below 0.75 as Reserve Bank of Australia cut its benchmark lending rate to a record low of 1.5%. RBA was the first major central bank to act post U.K.’s referendum vote, and now all eyes will be on Bank of England on Thursday with market expectations too high for the central bank to follow suit.
According to RBA’s statement, “economic growth continued at a moderate pace”, suggesting that inflation was the major factor leading to the decision, and if prices remain stubbornly low in Q3, I expect another rate cut in 2016 which will add further pressure on the Aussie. 

Markets are awaiting Prime Minister Shinzo Abe's cabinet to approve the 28 trillion-yen stimulus package today. However, direct fiscal spending will likely be a quarter of the total package which might disappoint markets and lead to further gains in Yen unless more aggressive action is taken.


Source link  
A data-packed week lies ahead

Asian equities roared back to life during early trading on Monday after oil sharp appreciation boosted global sentiment...

Safe havens falter as risk sentiment improves

Markets have so far been quite bullish over the past few weeks, as there is renewed optimism...

Markets mixed despite VIX hitting a decade low

After returning from a long weekend, equity investors seem...


Yen bears fail at big hurdle

USD bulls have managed to claw back some ground in the market today as the dollar was buoyed...

Strong USD selling on Trump comments

The US dollar has come under some strong selling pressure today after recent comments...

Geopolitical concerns boost save havens

Investors are dumping risk assets early Tuesday as geopolitical tensions remained the key...


Appetite to risk evaporated

Equities across Asia fell on Thursday following Wall Street’s biggest one-day reversal...

Crude bulls take centre stage

Crude bulls have been given a strong uplift by the market on the back of a weaker US dollar...

Flight-to-safety sends safe havens to monthly highs

The robust growth in manufacturing data across...

  


Share: