1 Dec 2014
Oil price tumbles 40% since June – Investec
FXStreet (Barcelona) - The Research team at Investec note that Oil prices have fallen 40% since June and it affects both oil-linked currencies as well as near term inflation.
Key Quotes
“Oil prices have been in decline this year, with oil having tumbled almost 40% since June due to the US shale boom and slower economic growth in China and Europe dampening demand. The Organization of the Petroleum Exporting Countries decision last week to hold oil supply steady amid falling prices has acted like a red rag to a bull, as the market sees how low it can push the price of oil before the oil producers are forced to act to protect prices.”
“Oil-linked currencies such as the Canadian Dollar and Norwegian Krone have fallen in the aftermath. Oil importing countries currencies such as the British Pound, Japanese Yen, and to some extent Euro, have also been hit.”
“The lower oil price will see a drag on near term inflation at a time when there are concerns about the extent of price slowdown and targeting higher levels of inflation. There will be second round spending effects as the money saved on energy prices is spent by consumers but this will take a while to be seen in the UK and the Bank of England will have to look through a soft patch of inflation that will likely stop them raising interest rates for now.”
“By Contrast, the US Dollar has been a net winner, more-so by default. Lower pump prices are a shot-in-the-arm for the economy as disposable income increases (due to lower fuel taxes), so the US are likely to be one of the first to receive the second round spending effects that some have likened to a mini-stimulus package. This has been part of the story of the US Dollar continuing to make gains.”
Key Quotes
“Oil prices have been in decline this year, with oil having tumbled almost 40% since June due to the US shale boom and slower economic growth in China and Europe dampening demand. The Organization of the Petroleum Exporting Countries decision last week to hold oil supply steady amid falling prices has acted like a red rag to a bull, as the market sees how low it can push the price of oil before the oil producers are forced to act to protect prices.”
“Oil-linked currencies such as the Canadian Dollar and Norwegian Krone have fallen in the aftermath. Oil importing countries currencies such as the British Pound, Japanese Yen, and to some extent Euro, have also been hit.”
“The lower oil price will see a drag on near term inflation at a time when there are concerns about the extent of price slowdown and targeting higher levels of inflation. There will be second round spending effects as the money saved on energy prices is spent by consumers but this will take a while to be seen in the UK and the Bank of England will have to look through a soft patch of inflation that will likely stop them raising interest rates for now.”
“By Contrast, the US Dollar has been a net winner, more-so by default. Lower pump prices are a shot-in-the-arm for the economy as disposable income increases (due to lower fuel taxes), so the US are likely to be one of the first to receive the second round spending effects that some have likened to a mini-stimulus package. This has been part of the story of the US Dollar continuing to make gains.”