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Afternoon analysis 23.08.2016

, author:

Marcin Lipka

Oil is getting further from its recent peaks due to information from Iraq and Nigeria. Hungary has left their interest rates unchanged and Turkey decreased them as expected. The zloty remains stable.

After reaching the 51USD per barrel level at the end of the past week, the Brent oil is giving away a portion of its growths. Currently, it's slightly above 49 USD per barrel. This is a result of at least three matters.

First of all, it appeared on Friday that the Baker Hughes data indicate another increase in the amount of drilling towers in the USA. Even though their general amount remains lower than one year ago (406 vs 670), there are 90 more towers in comparison with June. This may mean that some of the American oil producers increase their investments, even when oil is within the range of 40-50 USD.

Second of all, news regarding an agreement between the rebels from the Niger delta and the Nigerian government is negative for oil as well. This may cause the Nigerian production to return to the range of 1.9-2.0 million barrels per day (300-400k more than currently).

The third matter that's causing a pressure on WTI and Brent, are the announcements of possible increase in oil production by Iraq. However, this information is related to a meeting of representatives of OPEC countries and Russia in Algeria at the end of September. Moreover, it may even limit the recent declines. The new oil minister, Jabbar Al-Luaibi, may increase the current production, if he estimates that the discussions in Algeria may bring certain solutions that may limit Iraq's increase in mining in the future.

Considering the possibility of a larger mining in the USA or in Nigeria, the matter of the Algerian meeting should limit depreciation pressure in the forthcoming weeks. A larger likelihood of a more durable return of oil below 45 USD per barrel would appear, if OPEC and Russia do not achieve an agreement. Moreover, the global demand from the break of the third and fourth quarter, would have to be worse than expected. This would result in a quick increase in oil supplies in the USA in October and November.

Lira, Forint and zloty

Two central banks were making decisions regarding their interest rates this afternoon. The Turkish monetary authorities decreased them, as expected. On the other hand, the Hungarian autorities decided to leave their interest rates unchanged. The lira, as well as the forint, have shown a neutral reaction to these decisions.

The matter of Fitch or Moody's downgrading Turkey's rating to speculative level, should be the most significant for the lira in the short-term. If a downgrade happens, a pressure on the Turkish currency may return. The forint is supported by the GDP rebound in the second quarter. It reduces the risk of a decrease in interest rates in the nearest future.

The zloty is relatively stable this afternoon. The market continues to anticipate Janet Yellen's testimony on Friday. Until then, there are relatively small chances that the EUR/PLN would clearly deflect from the 4.30 level. The USD/PLN should be close to the 3.80 level.


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 Cinkciarz.pl Sp. z o.o is prohibited.

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