Afternoon analysis 03.10.2016:
Last week’s positive sentiment in the oil market continues. Iran increase its oil production potential to 4.2 million barrels per day. The Polish currency is stable after a better than expected PMI data.
Oil is becoming more expensive
Last week’s agreement between the OPEC countries supports oil quotations. The WTI oil price is returning above the 48 level and the Brent is above the 50 level. Additionally, the latter is reaching its highest price level since August 19th. If there are no negative shocks, the scope of price fluctuations will probably increase to 50-60 dollars per barrel, at least until the official OPEC meeting in November.
Even though the Cartel proved to be determined enough to defend the oil prices, the details of the final agreement will allow us to estimate its impact on oil prices. Let’s keep in mind that Iran, Nigeria and Libya have been excluded from the limits. However, taking into consideration the potential and aspirations of these countries, it’s still not certain whether they will achieve agreement regarding the upper level of their production. According to the National Iranian Oil Company’s director of foreign affairs who was cited by the IRNA, Iran’s production abilities increased to 4.2 million barrels per day.
Russia’s standpoint also remains unknown. According to Bloomberg, the Russian Minister of Finance, Anton Siluanov, claimed on September 30th that Russia will not change its budget perspectives (they estimate an average three-year price of oil at the level of 40 dollars per barrel.) This may suggest that Russia is not willing to participate in any limits regarding oil production. However, it is more likely that this is a negotiation strategy before the official discussions. The Saudi Arabia already showed that its ready to compromise, as well as a significant change in its strategy, to raise the level of prices (and not to allow oil prices to drop in winter).
The Polish currency basically remained unchanged against the currency basket, expect for the pound (an approximately 0.9% strengthening, which brought the GBP/PLN down to 4.91.) The EUR/Pln is moving within the range of 4.29-4.30 for most of the day. Investors are most likely anticipating the decision from the NBP regarding interest rates. Even though the market consensus estimates that interest rates will remain unchanged (the NBP president spoke of a possible hikes at the end of 2017,) we may expect larger fluctuations of the zloty at the time of the data publication. Better than expected industrial ISM data from the USA (51.5 vs estimated 50.3) caused the dollar to strengthen, as well as the zloty to wear-off slightly after 16.00 (4.00 PM). The USD/PLN neared the 3.84 and the EUR/PLN crossed the 4.30 level.
We’ll know the decision from the Reserve Bank of Australia (RBA) regarding interest rates tomorrow morning. The consensus is assuming that interest rates will remain at the level of 1.5%. Let’s keep in mind that at the beginning of the year interest rates were at the level of 2%. Since then, the RBA decreased it twice (each time by 25 base case points). Monetary easing was caused by a low inflation pressure (and inflation below the target), as well as a decrease in risk related to the real estate sector (a slowdown in pace of granting loans and increase in prices). Interest rates in Australia are currently at historically low level.
At 10.30 AM we will know the PMI reading for the British construction sector. This data has been declining since the end of 2014. Moreover, the readings are below the level of 50 since July. However, the reading from August appeared significantly better than expected (49.2 vs 46.1). Even though the market consensus is assuming that the PMI will be at the level of 49 points, the most recent positive data from the British economy gives hope for a better result in construction sector. This would strengthen (or decrease the pace of wear-off) the pound after today’s overvalue caused by the statements regarding Brexit from the British prime minister.
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