FXStreet (Delhi) – Research Team at BBH, suggests that the drop in oil prices is a significant and while some may link the drop in oil prices to China, it is a bit of a stretch.
Key Quotes
“No, the drop in oil prices cannot be solely laid at the feet of Chinese policy makers. The tensions between Saudi Arabia and Iran make it even more difficult to envision a cut in OPEC output in the middle of the year. Although US oil inventories fell last week, according to the US Department of Energy, the glut was simply shifted to the products. Gasoline inventories, for example, surged by the most in more than two decades. Stocks of distillates, which include diesel and heating oil, rose by the most in nearly five years.
The US rig count is at a five year low, about a third of its peak in late 2014. Yet US output has continued to surprise in its resilience. Output rose to by 17k barrels a day last week, to 9.22 mln barrels a day. This is the most since August. OPEC output has been rising for two years and non-OPEC producers, such as Russia, are reporting strong output. This does not yet include the new Iranian output that is expected to exacerbate the glut when sanctions are anticipated to be lifted later this month.
The price of oil fell about 30% last year. It is off another 12% so far this year. In the first four days of 2014, it fell nearly 8.5%. Investors are anticipating a policy response. The drop in oil prices, more than China’s yuan and equity developments, have pushed the Canadian dollar to new multi-year lows and has sent the Norwegian krone to its weakest level against the euro since late-2014.”
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