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The furious fall of oil over the last six weeks has shaken traders and sowed doubt among investors: if the demand for the economy's most important fuel weakens, what does it say about the economy itself? even?
Crude oil futures have declined 26% since October 3, from $ 76.41 to $ 56.46. On Tuesday, the futures had closed in negative territory for 12 consecutive sessions, a record. Brent, a global benchmark, has dropped 23% since Oct. 3 to $ 66.76.
This type of volatility can be an alarm signal for the rest of the economy. When oil rises – as it has done for a large part of the year – and then collapses suddenly, the economy is often in a recession.
The volatility of oil in 2007 "was not the cause of the financial crisis, but it was certainly a sign that things were not going well," says Will Rhind, managing director of GraniteShares, which offers funds negotiated in stock Exchange.
This time, it is not the case. In almost every respect, the US economy is on the upswing, recording its best two-quarter GDP growth rate in four years. Similarly, the World Bank predicts that the world economy will continue to grow by at least 3% this year and next.
And yet, there is no doubt that investors are worried about the contagion. Energy is not the only market to sneeze today.
Indeed, 2018 "looks set to be the worst year ever in terms of the magnitude of negative dollar returns, the data back to 1901," according to Deutsche Bank, which found that 89% of the classes assets are down dollars this year. "There was literally no place to hide," Peter Boockvar, chief investment officer at Bleakley Financial Group, wrote. Barron. "I think demand is raising legitimate concerns as global economic growth slows."
Global economic expansion is expected to slow in the coming years, and trade tensions between the United States and China are significant. If 25 percent of US $ 200 billion worth of US goods on Chinese goods comes into effect on January 1, growth forecasts are likely to be sharply lowered.
The retirement in the oil, which has recovered some of the ground lost the last three days of the week, is not a cause for panic. Yes, economists are worried about global growth and tariffs. But the essential of the evolution of oil prices can be attributed to the growth of supply and geopolitics, not to the world economy.
"It was not a change in fundamentals, but a change in perception," says Citigroup analyst Ed Morse, who has correctly predicted several oil movements over the last five years.
Morse said commodity traders were betting earlier this fall on a strong bull market for crude. Some traders and analysts had predicted that oil would test the $ 100 level again. Fury reached its peak in early October, with long positions exceeding short positions of about 14 for one, well above the usual ratio of 5 for one, Morse rating.
"I do not think it's undeniable that financial market players were largely responsible for the rise in oil prices and the rout," he said. "People have been short. They did it very quickly. "
While the initial drop in October was due to market dynamics, it was exacerbated this month by President Donald Trump's decision to grant several major oil importers, including China, exemptions from Iran.
Traders had predicted that Iranian exports would fall once the sanctions came into force, but the exemptions eased the expected decline in supply. The increase in supply tends to drive down prices.
Any sudden change in the price of assets is doomed to market anxiety. But similar declines have already occurred and very few of these declines have lasted.
Nicholas Colas of Datatrek Research has listed 14 cases since 2000 in which oil prices fell by more than 20% in 20 days – as in the 20 trading days until Tuesday – and found that prices had gone up on average 1.9% over the next 20 days. days. The five notable exceptions occurred during the 2008 financial crisis and in 2014, during an oil rout that resulted in a price drop of more than 70%. These periods seem considerably different from those of today.
"Look for oil to be installed here as a sign that the recent decline is just a reset of supply forecasts," wrote Colas in a note about his analysis.
In the absence of another price decline, equity investors should have little to fear from contagion, as the correlation between stock prices and the price of oil is low, he adds. . "Oil prices are more focused on the feeling of supply vis-à-vis the different sectors, while stocks are struggling with interest rates and gossip record gains."
Morse expects the Brent, currently at $ 67, to finish the year at $ 78 and is trading at an average price of $ 70 next year. This relative weakness next year will be caused by an increase in market supply, rather than a weak demand, he said. And it does not anticipate the problems of forecasting the price of oil in the economy as a whole.
"I think the price will be more reflective of GDP rather than indicating where it is going," Morse said.
The biggest joker of these forecasts is the OPEC meeting scheduled for December 6 in Vienna. Saudi Arabia indicated that it would support a reduction in production, although the magnitude of this reduction is a determining factor.
"OPEC will not know what it's doing until the first week of December," said Morse. "It will depend on the price of this week."
Write to Avi Salzman at [email protected]
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