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Daily analysis 18.04.2016

, author:

Marcin Lipka

The lack of the agreement in Doha overvalues the price of oil. However, this depreciation is modified by the strike in Kuwait. Bullard about the monetary policy for the Financial Times. The zloty remains weak. The EUR/PLN is in the area of 4.30.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.30: William Dudley, chairman of the New York Federal Reserve department, will open the conference regarding the Transatlantic economy. It is not clear whether he will refer to the current monetary policy of the Fed.

What happened in Doha?

During the weekend, Qatar was visited by the representatives of the countries which are responsible for the mining and production of approximately 50% of world's oil. This meeting did not end with an agreement. However, it is worth noting a few elements which may be significant for the future evaluation of the WTI and Brent.

On Sunday morning, Reuters informed us that the initial agreement between the Doha meeting participants contains information about freezing the production of oil at the level from January, and establishing another meeting for October. It would be held in Russia.

Statements from particular participants of the meeting were also quite optimistic. Kuwait's minister of oil claimed that everybody is optimistic regarding the agreement. Wilson Pastor, the Ecuador representative at OPEC, was suggesting that the agreement is established and, “there are only misunderstandings regarding selection of words, and it is possible that we will finish in the afternoon.”

However, before noon several announcements appeared regarding the discussions between the Saudis, Russians and the countries of the Persian Gulf. These discussions regarded Iranian production. As a result, some of the meeting's participants began to inform us in the evening, that the agreement is possible only when everybody participates. However, due to the fact that Iran suggested for a long time that it is not interested in freezing the production at the level from January, there were more arguments for the meeting to rather end with a failure.

After 20:00 (8:00 PM), the Nigerian minister of oil said that the discussions did not result in any specific conclusions. This was later confirmed by other participants. So, what was happening for all that time? According to information provided by Financial Times, the Saudi Arabian minister of oil, Ali al-Naimi, was also taking part in the initial agreement. However, it was probably Mohammed bin Salman, the vice-heir of the Saudi Arabian throne, who did not want to agree for an understanding without the participation of Iran. He presented such view in his interview with Bloomberg the other week.

The lack of the agreement is theoretically a negative signal for the oil market. Just after the opening of the terminal contracts, the WTI decreased by approximately 7%. However, the situation became stable relatively quickly. This was probably due to the fact that in the short term, the hypothetical conclusions from Doha would not be of great significance.

A strike of 6000 employees of Kuwait's mining industry occurred this weekend. This also had a stabilizing impact on the prices of oil. Kuwait is mining approximately three million barrels of oil per day. On Sunday, this result decreased to 1.1 million. The difference equals the current oversupply of oil, approximately.

However, it is worth noting that when the strike finally ends, we may be dealing with a clearer pressure on prices within the few forthcoming months, especially considering that Saudi Arabia may increase its seasonal mining without a previous agreement. The production between May and August was growing at the pace of approximately 300k barrels per day in the past years.

This may result in a fact that oversupply of oil will remain longer, even if the mining in the USA is limited. This information should be negative for such currencies as the Canadian dollar, rouble, the Mexican peso, and the Norwegian krone during few forthcoming months.

Also, due to a strongly positive correlation between prices of oil and a general worldwide sentiment, the currencies of the emerging markets may also react negatively. However, the pressure on the currencies of the countries which import oil may be smaller, if they take advantage of the milder monetary policy of the Federal Reserve. The prices of the WTI and Brent are remaining below the level of 40 USD, thus the American inflation pressure will be limited. Additionally, a weak global sentiment will withhold the FOMC from more definite moves. Thus, this may be a negative information also for the dollar. This may allow the EUR/USD to remain at a relatively high level.

Bullard for “FT”

It is also worth noting that the interview with James Bullard for Financial Times, regarding the monetary policy of the FOMC. The Chairman of the St. Louis Fed said that the data for the first quarter is quite disturbing and sustains the arguments concerning patience regarding adjustments in the monetary policy.

Bullard also referred to the estimations of the GDPNow model, prepared by the Atlanta Federal Reserve. In this model, the American economic increase from the first quarter is estimated for 0.3% in the annualized interpretation. The FOMC representative claimed that the model of the St. Louis Fed continued to indicate that an increase at the level of 3% y/y is “just around the corner.” However, this did not come true.

Thus, we can assume that the Federal Reserve will want to receive better data during the forthcoming months. This means that the chances for an increase in interest rates in June may become smaller. This factor, and the quotations of oil, will probably have a negative impact on the USD.

Stabilization at a low level

The events from Doha should not have a significant impact on the PLN. On one hand, they may increase risk aversion, which is theoretically negative for the zloty. On the other hand, considering the Federal Reserve's sensitivity on an increase in risk aversion, and import of deflation phenomenons from the global economy, the Fed policy is very likely to remain mild. This is a positive signal for the zloty.

Thus, the Polish national currency may remain at the current low level. To a significant degree, this level is a result of an external situation. We may expect that the current quotations of the EUR/PLN at the level of 4.30, and of the dollar near the level of 3.80, are the base case scenario.


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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