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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…




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