Oil Tries Out the $50 a Barrel Level – Rabobank
Jane Foley, Senior FX Strategist at Rabobank, notes that last week Brent crude traded above the $50 a barrel level for the first time since November 2015 on the back of various supply outages and a better performance in global demand for gasoline.
“The result has been a draw-down of stocks from their recent highs and a perception that the long awaited improvement in the balance between supply and demand may finally be coming into fruition. On the back of the better tone in oil, the NOK and the CAD performed well though the CAD has lagged the NOK on the back of uncertainty connected with the impact of wildfires on Alberta oil production.
While a stronger oil price will improve the outlook for both the Norwegian and Canadian economies, the domestic fundamentals related to their respective currencies differ considerably. Over the medium-term we expect it will be the CAD which will be the better performer.
Earlier this month Nigerian oil Minister Emmanuel Ibe Kachikwu reportedly stated that the country’s oil production had fallen by almost 40% to 1.4m barrels per day due to militant attacks on facilities in the Delta region. This is the lowest output for over 20 years.
This news coincides with a report from the US Energy Information Authority stating that oil production from seven major US Shale facilities is expected to drop by 113K b/d to 4.96m b/d in June and May. There are also concerns that electricity blackouts and shortened working weeks will continue to hamper the production of oil in Venezuela.
Just as fears of oversupply in oil are ebbing, the EIA this month released its Outlook suggesting that there is potential for an upward revision to its 2016 demand projections given higher than expected growth of 1.4m b/d in Q1. India alone accounted for nearly 30% of the Q1 global increase in demand for oil in a trend which could continue into Q2 and beyond. The Indian economy grew 7.6% in the year to March 31 2016. Although the Finance Ministry has forecast a growth rate between 7% and 7.75% this year, the WSJ reported a projection of about 8% from a government official.”