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Editorial Dept

Editorial Dept

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Oil Still Moving Down, But Mid Term Global Supply Looks Uncertain

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. The U.S. dollar is the culprit

 

- Morgan Stanley says that the collapse of oil prices from $55 to $35 has much more to do with the U.S. dollar than it does with too much supply.
- The Fed raised interest rates for the first time in nearly a decade in December 2014, giving added momentum to a dollar that has been strengthening largely since 2014.
- But there is a reinforcing cycle with dollar appreciation. Dollar strengthens > commodities decline because of their dollar-denominated pricing > commodity-exporting countries see their currencies decline > dollar strengthens relative to other currencies, and then of course > commodity prices decline. The slump in commodity prices could start that cycle on its own as well.
- With cracks in the global economy starting to become visible, the dollar further acts as a safe-haven. That could keep its value high for much of this year, keeping somewhat of a cap on commodity prices at these low levels.

2. Or maybe China is the culprit?

 

- China has been the darling of commodity producers for much of the 21st century. But the love affair is coming to an end. China’s slowdown is one of the principle causes of the collapse…




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