03-10-2018

Oil prices have been surging in 2018, which live up to our expectation in the April report. The international crude oil supply remains relatively tight currently. Although the U.S and OPEC have been boosting their oil production, the additional oil supply won’t be enough to offset losses from Iranian oil amid a cut of supply from major oil suppliers. Apart from supply shortage, the strong USD also leads to a depreciation of emerging market currencies. Venezuela’s currency has depreciated over 99%, resulting in a serious domestic economic crisis. The crude oil production of Venezuela declined to its lowest amount in 40 years. Following a Fed rate hike and the forthcoming rate hike cycle, the emerging market currencies will continue to be under pressure. The oil price rally also indicates an upward pressure on inflation. Besides, falling oil rigs also shows that there are limited rooms for the US to boost their production capacity. With a tougher round of US sanctions on Iran coming into effect from November 4, the crude oil supply shortage is likely to get worse and push oil prices even higher. As a result, it is expected to have a positive impact on oil-related sectors in medium-to-long term.

Source:
Bloomberg
HK Economic Journal
Wall Street Journal

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