Saxo Bank, the multi-asset trading and investment specialist reports today that the current uptrend in oil is here to stay with prices expected to trade around $50-$55/barrel by year end, before rising further in 2017.
Saxo Bank’s Head of Commodity Strategy, Ole Hansen, issued this forecast today at the 11th JFEX Expo and Awards, in Amman, while also going on to say that headwinds such as oversupply have impacted the strength of the current rally.
Ole Hansen said: “The $50 level is a line in the sand that the market is not prepared to break now as it may allow increased production from high cost producers. Eventually the price will have to pass this psychological level but potentially not until the final quarter of 2016. This will certainly add additional support to oil-dependent economies, but in the short-term the risk of a set-back has risen given the fading impact of recent supply disruptions.”
“The latest extension of the rally during May has been driven by major supply disruptions in Canada and Nigeria,” said Hansen. “Just a few years ago similar disruptions would probably have triggered at least a 25% rally in oil. The fact that we have seen less than 10% is a testament to the overhang of global supply which needs to be reduced before the price recovery can continue.”
The remarkable rally in oil since the double bottom out in January has surprised the market, especially the timing. Since January the market has been in slow recovery, with the recent major supply disruptions helping to balance the market. With Opec due to meet again in June, attention is again growing on the cartel to see if any action on production will be taken.
“My expectations ahead of the Opec meeting are low,” said Hansen. “The cartel does not need to make any major decision at this meeting as the market has recovered since Doha. This will instead be an opportunity for them to repair their reputation, discuss the market and send a unified message.”
Hansen also said he will be carefully watching the rhetoric of the new Saudi oil minister Khalid al-Falih towards Iran: “Will his comments be as hard-line as we found in Doha, and what will that say about the future of Opec as an operating cartel?”
Gold still remaining shiny in the eyes of investors
Meanwhile the precious metals market is having a strong year up 22% to date, with gold having established a trading range since February currently between $1,205/oz and $1,305/oz. Hansen says gold remains a popular alternative investment, but it is heavily influenced by the performance of the US dollar.
“The weaker dollar combined with the fact that trillions of dollars’ worth of sovereign debt has been trading at negative yields have been two of the major drivers behind the strong performance so far this year. As the market now adjusts to a potential stronger pace of US rate hikes, the dollar has recovered some of its poise and it has triggered the first strong challenge to gold and the bullish beliefs among investors. So far this month we have seen investors increased demand for gold despite the price weakness. Some volatility in gold cannot be ruled out, especially if the dollar strengthens further, but we believe that gold eventually will make a break above $1,305/oz after which it could target $1,380/oz. Further US dollar weakness could challenge support for gold but it would take a break below $1,205 for it to get bearish.”
Saxo Bank is the main sponsor of the 11th JFEX Expo and Awards which brings together more than 2000 investors and traders to examine in detail the opportunities in the financial markets, particularly the prospects opening up from increased demand for forex knowledge in MENA.
The bank has been nominated for three JFEX Awards: Best Forex Bank in MENA, Best Mobile Trading Platform, and Best Proprietary Platform. The latter two awards recognise the success and popularity of SaxoTraderGO, the intuitive multi-asset trading platform launched last year by Saxo Bank. SaxoTraderGO was built with a focus on usability and supports a seamless user journey between Web, Android and iOS devices.
Being a fully licensed bank in Europe, Saxo Bank offers investors access to 30,000 financial instruments including Equity Shares listed on over 30 global stock exchanges, 160 currency pairs, 8,700 CFDs, 1,500 ETFs and ETCs, Futures and more. These instruments are all readily available through SaxoTrader platforms.
Founded in 1992, Saxo Bank is among the first financial institutions that developed an online trading platform that offers private investors and clients the same tools and real time market access as professionals. For more than two decades, Saxo Bank has grown to become a fully licensed bank in Europe specialising in trading and investment.