The price of oil has steadied in recent days after making new lows on Tuesday. The March WTI futures contract approached its 20-day moving average earlier today (~$52.30) for the first time since late November. This was a new selling opportunity as it has reversed lower. We are looking for lower prices and it would not surprise us to see the price of WTI fall to the late-2008/early-2009 lows in the $32-33 area.
The two main knocks against the US from global investors have been largely addressed. The US budget deficit has been reduced from 10% of GDP to less than 3%. The current account deficit has been halved. Nevertheless, many observers, including some Americans themselves still think that the US is in an irreversible decline that affects all great powers.
As we ring in the New Year, let us take stock of where we are at with the oil markets. Last year proved to be a momentous one for the oil markets, having seen prices cut in half in just six months.
The dramatic slide in the value of the rouble has claimed its first banking casualty. The Russian Central Bank, to the tune of US$530m, is bailing out Trust Bank. The emergency liquidity line’s intent is as life support for one of modern Russia’s more established banks.
The demand for oil in 2015 will drop to its lowest level since 2002 because of an oversupply of crude and stagnant economies in China and Europe, according to OPEC’s latest forecast. And that’s just one of several sour estimates.
What can’t go up forever apparently will not and today has seen a couple violent moves. The dollar, which has risen by more than 10% against the yen since the BOJ surprised with a 5-4 vote to accelerate its already aggressive monetary easing on October 31, rose to new multi-year highs yesterday just shy of JPY122 only to sell off to almost JPY119.50 today.
The US dollar remains king. It continues to receive support through the divergence in growth and interest rate differentials. Even though the ECB did not take fresh action this past week, there is little doubt that it will in early 2015. The aggressive monetary policy in Japan, where the BOJ is expanding its balance sheet by 1.4% (of GDP) per month for as long as the eye can see, also stands in sharp contrast to the US, where the market has largely priced in a hike in Q3 15.
Throughout 2014, financial traders around the world have been enthusiastically taking to bitcoin as a new area for speculation. Analysts, commentators and investors have all ensured that 2014, for investments at least, may well be remembered as the year of the bitcoin.
Oil futures fell over 4% in London as OPEC announced it would leave its oil output target unchanged, leading further momentum to the bear market in energy commodities.
OPEC announced Thursday that it would keep steady its output ceiling of 30 million barrels a day, according to Ali Al-Naimi, Saudi Arabia’s oil minister. Brent crude futures fell to less than $75 per barrel, the lowest point since 2010, while the WTI crude fell to $71.34 per barrel.
Official comments have injected volatility into the foreign exchange market. As we anticipated, Japanese officials pushed back against the seemingly free-fall in the yen sparked by the aggressive BOJ action and the diversification of the government pension funds. Finance Minister Aso expressed concern about the pace of the yen’s decline. However, comments by Abe-adviser Hamada underscored that the direction was no objectionable and that JPY120 would be good for the Japanese economy. The dollar was pushed off a full yen to roughly JPY117.35 before finding a good bid.
