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Oil price collapses on supply glut

Published December 19, 2018

by Nicholas Cork

A nervous market was seen overnight ahead of the FOMC as some further trimming of investor positions was reported, not helped by a BofA fund manager survey showing the worst outlook in a decade. Notably and somewhat unusually, the Trump Administration continued to lobby against a rate hike. Oil was the biggest loser, collapsing 5% through $50 bbl as significant supply glut stories flood the market – Britain’s largest oilfield restarting production, the U.S. government saying shale output would top 8 million barrels per day this year, and Russian Oil output hit a record high this month.  Commodity currencies will generally remained under pressure along with Oil, but some divergence seen overnight with the CAD hitting new lows for 2018, however the NZD did gain some support from the second successive month of  price gains at the Global Dairy Auction – thus the NZD/CAD has risen 1%.

The AUD was mostly sidelined again within 0.7150/0.7200 after RBA minutes showed that the board agreed the next move in Interest Rates “was more likely to be an increase than a decrease, but that there was no strong case for a near-term adjustment in monetary policy,” and now it also awaits the FOMC result and still holds above the 0.7150 support level today.

There was quite a lot occurring last night along with Oil,  with the DOW moving in and out of the money a few times before closing slightly lower, US yields have edged around 4bp’s lower across the curve, the Volatility Index sits at 3 month highs, Italy and the EU have reached a budget accord,  Japan is commissioning aircraft carriers,  and Xi gave a speech in the Great Hall where he said that “There is no text book that can provide a golden rule, and there is no instructor who can boss around the Chinese people.”

So there you have it ..  The next 24 hours should be interesting.

Good Luck