16 Dec 2014
Oil decline and key questions and focus - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank noted that the roughly 50% decline in oil prices since June has caught the world by surprise and the Key questions focus on the drivers behind the move, the outlook, and the impact.
Key Quotes:
“There are many moving parts, but the key drivers in our mind are nearly unchanged Saudi oil supply combined with a surge in US oil production, against a backdrop of tepid global demand growth”.
“While many focus on the Saudi rationale to curb the US shale revolution and fight for market share, we think that’s just stage talk to keep other OPEC members in check”.
“It’s more likely that the Saudis and the Americans are coordinating their moves instead to put pressure on Russia and Iran, in a bid to achieve important geopolitical objectives over the Ukraine and nuclear negotiations respectively, with the Saudis additionally requiring the US to take the fight to IS”.
“The narrative matters here, because if our thinking is correct, then pressure will be maintained until these goals are achieved and oil prices can stay at relatively low levels – i.e. a good part of the recent pullback could prove to last throughout 2015”.
“This has important implications for economic and financial market forecasts. It embodies a significant wealth transfer from oil-exporting to oil-importing countries, putting pressure on the likes of Russia, Iran, and Venezuela, while offering welcome relief to countries like India, China, and Turkey. And, with regard to this latter group, let’s not forget to mention the Eurozone”.
“Linking up with the global inequality story, lower oil prices act as a tax cut that really benefits low income households – much of which will be spent and add to global growth at a very welcome time”.
“It also adds to deflationary pressure, however, and as such greases the way for further central bank largesse – we are mainly focusing on the ECB here, where we still see full-scale quantitative easing involving government bond purchases starting in March 2015”.
Key Quotes:
“There are many moving parts, but the key drivers in our mind are nearly unchanged Saudi oil supply combined with a surge in US oil production, against a backdrop of tepid global demand growth”.
“While many focus on the Saudi rationale to curb the US shale revolution and fight for market share, we think that’s just stage talk to keep other OPEC members in check”.
“It’s more likely that the Saudis and the Americans are coordinating their moves instead to put pressure on Russia and Iran, in a bid to achieve important geopolitical objectives over the Ukraine and nuclear negotiations respectively, with the Saudis additionally requiring the US to take the fight to IS”.
“The narrative matters here, because if our thinking is correct, then pressure will be maintained until these goals are achieved and oil prices can stay at relatively low levels – i.e. a good part of the recent pullback could prove to last throughout 2015”.
“This has important implications for economic and financial market forecasts. It embodies a significant wealth transfer from oil-exporting to oil-importing countries, putting pressure on the likes of Russia, Iran, and Venezuela, while offering welcome relief to countries like India, China, and Turkey. And, with regard to this latter group, let’s not forget to mention the Eurozone”.
“Linking up with the global inequality story, lower oil prices act as a tax cut that really benefits low income households – much of which will be spent and add to global growth at a very welcome time”.
“It also adds to deflationary pressure, however, and as such greases the way for further central bank largesse – we are mainly focusing on the ECB here, where we still see full-scale quantitative easing involving government bond purchases starting in March 2015”.