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  
Investors no surprised by earnings surprises

Wall Street ended mixed on Monday as tech stocks continued to lead the major indices. The S&P 500 finished flat at 2,670, with the 1.07% gain...

It's number 3 again!

Number 3 has been of crucial significance in 2018. Trump has been predicting that his policies would bring an increase in annual growth to over than 3% a year. The Federal Reserve is expected...

Global markets start the week off strong

Global investors are looking unfazed at the start of the week as global equity markets lifted and the USD continued to lose ground in the Monday session...


Xi Jinping provided equity bulls a boost

Appetite for risk bolstered Tuesday morning, as Chinese President Xi Jinping offered plans to further open up the second largest economy...

US markets continue to shine

Large swings in the equity markets have been the recipe of the day recently, as they swung lower on the back of political tensions in the US markets...

Global markets consolidate

Investors are likely to have breathed a sigh of relief after the US stock markets’ worst start to the second quarter since the 1929 Great Depression...


S&P 500 breaks 200 day moving average

Easter Monday is normally characterised by light trading, but today was anything but out the ordinary, as the US equity markets swung...

Attention turns back to data this week

Asian equities kicked off Q2 on a positive note, taking their cue from Wall Street’s rally on Thursday. The gains came despite China imposing...

US data fails to impress markets

It has been a positive day for the American economy as US GDP was stronger than expected coming in at 2.9% (2.7% exp), show casing...

  


Share: