Oil prices hovered below a three-year high last week, but the rapid run up in oil prices from below USD45 a barrel just seven months ago has lead many investors to ask if USD70 a barrel will mark the peak for the market? Learn more
In the latest escalation of the Gulf crisis in which a coalition of Saudi-led states cut off diplomatic and economic ties with Qatar, Saudi Arabia has now given Qatar a 24 hour ultimatum to fulfil 10 conditions, that have been conveyed to Kuwait, which is currently involved in the role of a mediator between Saudi and Qatar.
Whilst the official narrative for the diplomatic fallout is because – to everyone’s ‘stunned amazement’ – Qatar was funding terrorists, including a report by the FT that Qatar has directly provided $1 billion in funding to Iran and al-Qaeda spinoffs, could the real reason behind the diplomatic fallout be far simpler, and once again has to do with a long-running and controversial topic, namely Qatar’s regional natural gas dominance. Learn more
The last time OPEC (and Non-OPEC) member nations sat down to attempt a coordinated increase in oil prices by cutting production they succeeded… for about three months. Ever since then, oil has been on a gradual declining path, boosted by a surge in US shale output and declining global demand, with WTI recently even sliding sliding below OPEC’s implicit price floor of $50/barrel. Which is why on 25 May, after the failure of the first 6 month production cut, the same nations will try the same exercise, this time looking to cut output for 9 months, and hoping for a different outcome. At least that is the general expectation.
Bank of America’s Francisco Blanch has released a note previewing this week’s OPEC meeting titled “OPEC: extend and pretend“, and which boils down to the 3 choices faced by OPEC: maintain, curb, or hike output.
News this past week:
- Macron becomes youngest ever elected French President
- Strong April jobs report points to robust US labour market
- Eurozone economy grows 0.5% in first quarter
- Greece agrees bailout terms with creditors
- Volatile week for commodity prices
News this past week:
- Markets climb on ‘Santa Claus rally’
- ECB extends quantitative easing programme
- Volatile week for Italian banks following referendum
- Encouraging trade data out of China
- Oil surges after more countries agree to cut production
James Klempster (CFA) of Momentum Global Investment Management shares his view:
As this is my final blog of 2016 I felt it an apt time to look back on the year and to look forward to some key issues for 2017. My colleague, Glyn Owen, will be writing a far more detailed review and outlook which will be published in the coming days . 2016 was a year of mixed fortunes for investors, a very weak start set precedence for what looks likely to be a decent year for equity markets. 2016 will be best remembered for its twin political surprises of Brexit and Trump, or Brump, if you will. Whilst both being seismic-scale political events, the fact that their respective domestic markets brushed them off underscores the fact that a macro or political story is not the same as an investment case. To put it another way – even if you had called both elections correctly, would you have positioned your portfolio to benefit from an equity rally in either case? Probably not.
Oil soared as much as 10% after OPEC approved the first supply cuts in eight years in an effort to ease a record glut and stabilise global markets, but how effective will the proposed cuts be in raising oil prices?
The International Monetary Fund has cut its economic growth forecast for Saudi Arabia’s non-oil sector this year to 0.3 per cent, underlining the depth of the slowdown in the oil-dependent kingdom following a two-year slump in crude prices.
The new numbers, released ahead of Saudi Arabia’s first-ever international bond sale, suggest that the government’s efforts to cut costs and diversify its economy away from petroleum are having less of an effect than the IMF forecast previously. Saudi Arabia generates more than 80 per cent of its official revenue from oil, according to a World Bank report in July.
The impact is cascading through the broader economy and knocking consumer confidence, causing the non-oil sector to slide into a technical recession in the last quarter of 2015 and the first three months of this year. Learn more