Crude oil rebound eases concerns of another shock - MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that after declining on Tuesday and Wednesday, crude oil prices rebounded yesterday despite estimates from the IEA showing higher crude oil production amongst OPEC coupled with a cut to its demand forecast for 2017.

Key Quotes

“But the rebound in price yesterday was in part on reassuring words from Saudi Arabia’s Energy Minister Khlaid al-Falih who hinted that Saudi Arabia would be willing to explore the idea of co-ordinated action to help support price.  

That rebound in price yesterday was an important short-term development in that it avoided the potential for a broader pick-up in risk aversion that may have been triggered by fears of a more sustained drop in price to the detriment of many EM countries that have benefitted from the rebound in crude oil prices this year.

Of course, there is good reason to be firstly sceptical of any co-ordinated deal ever becoming a reality and secondly that it would provide support for crude oil prices but nonetheless, in current quiet summer trading, it will likely help maintain stable financial market conditions for now. NYMEX crude oil is now 11% higher from the closing low on 2nd August but remains nearly 15% below the closing high set on 8th June. So the trend is perhaps still down and there remains a risk of renewed weakness in crude oil prices becoming a source of FX volatility in September if carry positions are unwound due to renewed investor concerns over another bout of serious commodity price weakness.”