USD/NOK: oil prices remain a key driver for NOK - Nomura

Oil price outlook turning more negative, oil prices remain a key driver for NOK.

Key Quotes:

"Faster-than-expected declines in US stockpiles have pushed oil prices higher since mid-June lows. Recent stockpile data saw a slowing in the pace of inventory declines. 

While inventories are likely to continue to be drawn down through summer, the additional support this can provide to oil prices in coming months is more limited in our view because of the positive surprises we have already seen. 

Meanwhile, high oil price levels increase the risk of US production concerns resurface again which would limit upside room for oil prices. OPEC oil production is now close to pre-production cut levels in October, according to the Energy Intelligence group. 

While Saudi Arabia has said it will reduce exports, most of the marginal production rises have come from Libya, Nigeria and Iraq. OPEC and nonOPEC producers will meet in in Abu Dhabi next week (7-8 August). 

Because of the extent of non-compliance so far, it is becoming harder for OPEC to convince the market that cuts will go ahead. We recommend entering short NOK/SEK positions at current spot levels (1.0287), with a stop at 1.0475, targeting a move to 0.9875, where we will reassess positions."