Afternoon analysis 09.08.2016

Oil is slightly above recent lows due to comments from the OPEC officials. Currencies depended on energy commodities remain stable despite the crude volatility. The pound is around 4.98 PLN.

At the beginning of the month, oil tested at 39 USD/barrel level. Now, the prices are fluctuating around 43 USD, which is around 10% more. Overall, however, the demand remains too weak to balance the supply glut both from the oil and its products. As a result, there are still slim chances that in a few weeks, the value can be pushed above 50 USD.

Fairly low prices, both on the WTI and Brent, created some level of anxiety inside the producing countries. The OPEC claimed on Monday that it wants to run some informal talks during the International Energy Forum, scheduled for September 26th-28th in Algeria.

It has built some speculations that at this time the talks between producers can be finished with some formal agreement. Despite the fact that Doha negotiations in April between the OPEC and Russia had failed to freeze the production, it was a major element which pushed the prices higher in the Q2.

This time, a similar strategy may be specially implemented and it is really hard to evaluate whether the current changes are really a result of the supply/demand fluctuations or if they are the effect financial markets position.

On one hand, it seems that the major OPEC strategy should not change significantly. The Cartel wants to keep a high market share in order to limit the production from regions where costs are relatively high. This should limit capital investments (in the US, for example) and therefore keep average prices higher in the long run. It should give the OPEC some advantage over other producers in a few years period, unless other oil exporting countries discover new oilfields or the technological progress speeds up and allows the exploration of current fields at a lower costs.

On the other hand, for the short term, the oil oversupply is positive for commodity importing countries and for consumers. The overall comments from OPEC are expected to stabilize prices and lower the psychological selling-pressure. Finally, as it happened in Doha, however, they will probably also fail to produce any concrete outcome and its real impact will probably be limited.

In the coming hours, with the exception of weekly publications from the US crude market (today the API, tomorrow the EIA data), it is worth noting that the EIA monthly readings are scheduled for 6pm. The market participants would like to find out when the market is expected to be balanced and what level of productions is projected from the US.

Commodity currencies and the zloty

Analyzing the behaviour of commodity currencies in the context of the recent change in oil, we may conclude that they are fairly benign in comparison to the moves observed at the beginning of the year. The most recent slide on oil, which was around 20% from June’s peak, hasn’t significantly impacted the value of Russian rouble, Norwegian krone or Mexican peso.

This is probably the result of the expectations that despite the oil oversupply, the market is expected to balance slowly and the perspective for these commodities are much better - especially for the second half of 2017. As a result, the oil exporting countries may assume that the crude price should be around 50 USD/barrel instead of 30 USD, as it was seen at the beginning of the year when commodity pessimism was broad.

The zloty is slightly stronger to both franc and the dollar in the afternoon. Still, stronger changes are observed on the pound. The GBP/USD does not rise despite some softness on the US currency. As a result, with a globally stronger zloty, the sterling is only worth 4.98 PLN.