ENERGY | Supply Swells Global crude benchmark Brent
reached at $39 at one stage during current week due to increased tension between Saudi Arabia & Iran. However, supply has been increased due to differences about production cut in the OPEC cartel which was instrumental in 70% crash in crude oil prices since the middle of 2014. At present, traders and investors are mainly worried
Markets are panicking and lurching from one concern to the next, but we cannot judge the year as a whole by the first week. We shouldn’t throw in the towel quite yet
about this situation. Any increase in the tension between these two countries would further harm the production cut agreement among OPEC members. They don’t bother to reduce production in spite of such a major crash in the prices. The production growth has slowed outside OPEC, such as in the US, but it has not fallen fast enough to balance the market. Oil market watchers say crude oil supplies are outstripping demand by as much as 2m barrels a day. The price collapse has hammered the budgets of the world’s biggest producer nations and forced energy companies to reassess hundreds of billions of dollars in future spending plans.
Saudi Arabia has consistently pumped
more than 10m barrels a day over the past year as part of a strategy to preserve market share and put pressure on high- cost competitor countries. It has given no sign it will lower output to make room for Iran, which plans to increase production and exports as sanctions related to its nuclear program are lifted. That could happen by the end of the first quarter. Not only that, there are indications that the economy of China is weakening further, which is the biggest global crude consumer country with its PMI (purchasing managers index) came
February 2016 |
www.wealth-monitor.com
WTI Spot Price ($/bbl) OIL PRICE TRENDS: PAST 10 YEARS
0.00 20.00 40.00 60.00 80.00 100.00 120.00
95.95 79.39 98.83 91.38 91.83 98.17
60.85 53.45 44.60 37.13 Frequency: Annual Aggregation Method: End of Period 2006 2007 2008 2009 2010 2011 2012
down by 1 point from 51.2 to 50.2, and global stock exchanges and commodities witnessed further crash.
CHINA THE GAME CHANGER China is playing a bigger and bigger role in global markets, this is the new reality and markets have to accept that. Chinese volatility has complicated the outlook for money managers already dealing with tensions between Iran and Saudi Arabia; North Korea’s aggressive posturing on its hydrogen bomb capabilities, a weaker global growth outlook and uncertainty about what will happen to global asset prices in the coming months as the United States Federal Reserve raises interest rates. Concerns about China were compounded by oil prices at 12-year low, copper at 7-year low, iron ore at all time low, and gold & silver closed 2015 down for third year in a row. Natural resource prices have also fallen
into an even deeper due to concerns over slowing Chinese demand, with the Bloomberg Commodity index tumbling to a fresh 17-year low. The WTI and Brent crude oil prices have both fallen below $30 a barrel, the lowest since 2004. Chinese policymakers had “mishandled” its currency management, and pointed out that in the absence of communication, markets assume the worst. But investors were overreacting to the moves and cautioned against extrapolating too much from a handful of trading days in 2016. More than €3.1 trillion was wiped off
2013 2014 2015
global stocks during the first month of the year as China’s slowing economy and currency depreciations spooked investors around the world, leading to the worst start to a year for markets in at least two decades. Billionaire US investor George Soros left many market watchers nervous when he told a conference in Colombo, Sri Lanka, he “saw echoes of 2008” in current market conditions and warned investors “should be very cautious”. Markets are panicking and lurching from one concern to the next, but we cannot judge the year as a whole by the first week. We shouldn’t throw in the towel quite yet. Global markets will almost certainly be choppier in 2016 than they have been over the past few years. China’s behavior is confusing global market participants, where investors are losing heavily. As such, nothing much fundamentally changed in its real economy. Emerging market exchange rates
took another dive after the strong US jobless report lifted the dollar, sending the JPMorgan Emerging Market Currency index to a new all-time low. We can see how even relatively small falls in the Chinese [Renminbi] are having a major impact on global markets.
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Source: US. Energy Information Administration
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