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Oil Commodity Downside Pressure

By 29th September 2015 News No Comments
Oil Downside Pressure Rises

Both fundamentally and technically a big week for the oil markets. Commodity crisis set to continue as VW Scandal continues to unfold, Royal Dutch Shell and other Russian energy giants cease and delay offshore drilling, ECB inflation expectations turn negative, US Federal Reserve interest rate lift-off speculations and crude oil inventories data release.

Volkswagen Emissions Scandal

As the Volkswagen emissions scandal continues to unfold, econonmists and analysts are expecting a further knock on effect to the diesel markets. European refineries could be forced to switch back to boosting gasoline output and reducing diesel production and imports from Russia, the U.S. and Middle East Refineries. Gasoil futures continue to fall whilst Gasoil inventories continue to rise, putting pressure on the suppy and demand curve making a move lower in oil prices more likely.

Chinese Demand Knock-on Effects

Oil prices slid on Monday after china reported a drop in industrial profits from a potential weakening in demand by the world’s second largest consumer. The continuing decline in commodity prices has taken it’s toll on Glencore PLC, dropping almost 30% on the announcement from it’s CEO, the biggest decline since the company went public.

Energy Giants

Current oil prices remaining below $50 a barrel have contributed to energy giant, Royal Dutch Shell ceasing artic drilling operations due to fact it’s “not worth” the current price. Russian energy giants Rosneft OJSC and Gazprom have delayed offshore drilling by 2-3 eyars because of similar reasons to Shell and Russia’s roled in the Ukraine Crisis.

Central Banks

The US Federal Reserve’s potentially 2015 liftoff in federal funds base rate hikes will have further downside pressure on the oil prices. Whereas across the pond, the current level and decline in oil prices is surpressing UK and Eurozone inflation. UK inflation has already entered a period of deflation, with the ECB’s Draghi expecting Eurozone Inflation to turn negative in the coming months, counteracting the stimulus programme potentially forcing the ECB to “act” further. Next data release is 30th September.

Downside Risk

Crude oil inventories data expected to be released Wednesday 30th Septemeber, an increase in inventories could see a move lower in oil price. With added pressures from the Federal Reserve, China and energy giants around the globe, further depreication in the price of oil is likely. Light crude trading at the low it’s range between $44.00 and $48.00 a barrel, brent crude trading similarly at the low of it’s range between $47.50 and $50 dollars a barell. A move through the low of the range could see light crude trading near the low of $40 and brent crude trading near the $45 a barrel levels.


Charts via Bloomberg

GasOil Futures

Glencore record drop


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