Afternoon analysis 05.09.2016

, author:

Marcin Lipka

Changed quotations of oil should not impact the mid-term perspective of this resource, as well as evaluation of currencies of countries that are dependent on its export for the time being. Chrzanowski's resignation is for now neutral for the PLN.

Volatile oil

Quotations of oil focus the most attention in the wide market this afternoon. Past days have been showing an exceptional volatility of this resource.

The Wednesday data regarding the supply of oil and fuel in the USA have yet again increased to its record level and clearly went over the value of 1.4 billion barrels. This is the highest value in the EIA data history. This has caused oil, as well as its products to clearly lose value on Thursday. The WTI has reached the level of 43 USD per barrel.

The situation has slightly changed on Friday. One of the reasons behind a rebound of oil prices was the interview with the Russian president Vladimir Putin for Bloomberg TV. Putin was clearly suggesting that Russia would be willing to compromise with OPEC regarding stabilization of prices. The WTI has finished the week slightly above the level of 44 USD per barrel.

Speculations regarding cooperation between Russia and OPEC (especially Saudi Arabia) have been clearly revived before 10.00 (10 AM), when Reuters informed that at approximately noon both countries will make a common statement regarding the market cooperation. Investors have quickly related Putin's words from Friday with the news from today. They have been counting that the production can actually be stopped at its current level. The WTI has reached the value of 46.5 USD at approximately noon. This is 5% more than during Friday's closing.

However, it has quickly appeared that the market cooperation means more a start in discussions regarding cooperation. It has been established that the working groups will have meetings in October. Later on, the discussions between ministers of energy of both countries will occur in November (during cartel's official meeting).

The growths have began to melt this afternoon, especially considering that Al Arabiya TV has played the interview with the Saudi minister of oil, Khalid Al Falihem. He said that, “there is no necessity for freezing the production for the time being. This is among preferred options, but not necessarily today.”

Apart from many formal matters, as well as trust between the members, a question remains, what will happen with countries as Iran that wants to return to the level of mining from before sanctions and is not willing to participate in freezing the production. Iraq continues to announce an increase in its mining and Nigeria would like to return to the level from before the conflict against the rebels.

The more countries remain outside of the agreement, the weaker bases the agreement will have. Regardless of political matters, economic elements are not consistent as well. Moreover, we need to keep in mind that if the countries that are close to Saudi Arabia's policy would like to limit their production, it would happen a long time ago. However, the majority of the OPEC members would like to gain advantage with more economic methods (this mainly includes the reduction of production in the USA), which should be favorable for the countries that have lower mining costs (the Persian Gulf countries) in the long-term.

A probability of freezing the production at a particular level remains small. Therefore, the prices may remain near or below 50 USD per barrel during next months. Some participants leave themselves space for a reaction, if winter is exceptionally mild and overproduction would yet again take the prices clearly below 40 USD.

Regarding raw material currencies, the current changes are basically invisible. The market will slowly balance, and only oil going above 55 USD per barrel or below 35 USD per barrels, could clearly impact the behavior of the rouble, Mexican peso, Canadian dollar or Norwegian krone.

Zloty is stable

Marek Chrzanowski's resignation from being a member of the MPC is the most important information of the day in the Polish market. According to the Polish Press Agency (PAP) interview with the chairman of the NBP Department of Communication and Promotion, Martyna Wojciechowska, the decision was only a result of personal matters.

Chrzanowski was considered as a relatively hawkish MPC member. In his interview with PAP from the mid-August, he said that, “a decrease in interest rates could be more harmful than advantageous.” He also claimed that, “there are no reasons that could push the Council towards cutting.”

It remains unknown who could replace Chrzanowski for the time being. However, even without him the chances for a decrease in interest rates remain limited. Therefore, Chrzanowski's decision should not cause any larger speculations regarding monetary easing.

Rebound on zloty

The EUR/PLN has tested the area of 4.39 before the data from the American labor market. This is a high value, considering the global, as well as the local situation. In today's Daily analysis, we have been announcing that this overvalue is slightly exaggerated. Moreover, the foreign currencies should slightly lose value, if the American data is not very positive.

At approximately 16.00, the euro has been near the 4.36 level, and the dollar has returned below the 3.90 level. The EUR/PLN below 4.35 is not the base case scenario for the time being. However, taking into consideration that the dollar may continue to lose, the American currency may cost 0.02-0.03 PLN less in the forthcoming days. Further growth on the PLN is only possible, if the Moody's leaves Poland's rating unchanged on Friday.

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

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