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Market Commentary | Reverse Reverse

Oil slumped as much as 1.5% after a series of conflicting headlines

calamatta_cuschieri
Calamatta Cuschieri
12 October 2016, 10:34am
We’ve all sung (and probably danced to) the Cha Cha Slide sometime in our lives. Maybe it was a noughties party, a family wedding, or a karaoke night. And, depending on the level of intoxication, we’ve all been a bit bewildered when we have to ‘get funky’. But before I tell you about that one time, let me get back to the topic at hand.

One of the main stories hitting the markets on Tuesday was oil’s reversing price action. Oil slumped as much as 1.5% after a series of conflicting headlines which are at least as embarrassing as that one time you hit the dance floor to dance to – guess what – the Cha Cha Slide.

“We think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.”

“Our company will not cut or freeze oil production as part of a possible agreement with OPEC.”

“The base-case scenario for Russia would be to leave current output unchanged.”

The first statement was made on yesterday by Vladimir Putin. The second statement, released today, was made by Igor Sechin who is probably the most influential oil executive in Russia. He heads Rosneft, Russia largest oil producer which account for almost 40% of the country whole production. Perhaps even more bizarrely, the last statement was made by Russian Energy Minister Alexander Novak. Expect a cabinet reshuffle any day now…

Oil prices and persistent talks about capping or decreasing supply will likely keep dominating the headlines as volatility levels remain high and prices often whipsaw, sometimes even on an intraday basis. Any attempt at pulling supply away from recent levels has yet to be formally agreed upon and, in any case, any sustained increase in prices will probably bring in supply from non-OPEC members such as the US (the world’s top oil producer, lest we forget).

Elsewhere, poor corporate earnings, the oil slide and US monetary policy expectations combined to create an ugly day for the markets. Bond prices fell and stocks also gave up a significant chunk of their value. Alcoa was a notable underperformer, with disappointing earnings across the board. Samsung fared better… only relatively, after it was forced to discontinue its flagship Galaxy Note 7 smartphone after continuing reports of spontaneous combustion. The Korean electronics giant was down 8.5%, while the aluminium giant was down more than 11%. The energy sector gave up most of yesterday’s gains, with the bright spot for the day coming from luxury goods, notably in the form of LVMH.

Foreign exchange was also in focus yesterday – the US dollar strengthened significantly against its peers after positive inflation data and in anticipation of the latest US Federal Reserve minutes which are expected to show the level of hawkishness from dissenting members. The Fed chose not to raise rates at its last meeting in September, but three out of the 10 members disagreed and were calling for a hike.

On the other end of the scale, the British pound slid further on fears of a messy Brexit, although it did recover some of its losses after PM Theresa May accepted that Parliament should be allowed to vote on the exit package. Ironically, a court ruling this week will establish whether she can trigger the now infamous Article 50 of the Lisbon Treaty without the need for approval from the UK’s elected lawmakers.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investments Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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Calamatta Cuschieri is one of Malta’s largest financial services firms. The company offe...
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