The Precarious Balance in the Demand for Oil

On Tuesday, oil prices continued to sink on the continued strengthening of the US dollar and on negative expectations for the balance of oil supply and demand in late 2017 and early 2018. Brent crude is trying to cling to $46.50, but the representatives of a number of major investment banks, including Goldman Sachs and BNP Paribas, are saying that there are as yet no fundamental reasons for oil to rise.

Analysts are essentially using 2 basic factors in their forecast: US oil overproduction and inadequate production cuts by OPEC+ countries. The downward trend may again drive oil to $40/barrel, which benefits almost no one.

On Wednesday, investors are waiting for data on oil inventories from the International Energy Agency (IEA), remembering that the number of drilling rigs again rose the previous week. If inventories are not cut much more than last time, oil just might test $45 downward.

Tuesday's trading on the Asia-Pacific indexes closed mixed, although the majority of indexes are still up. The reason, again, was the US dollar, which continues its steady rise in expectation of Janet Yellen’s final meeting and the report on monetary policy. An increase in the Fed rate in the fall has again become realistic, and the dollar is on course to continue strengthening.
Japan’s Nikkei 225 closed trading up about 0.57%; Hong Kong’s Hang Seng was up 1.48%, and South Korea’s Kospi was up 0.58%.

The USD/JPY pair is poised at 114.25, trading a little higher, after a failed attempt to strengthen and test more serious resistance at 114.5. It appears that the pair may continue in that direction on Wednesday.

Among European currencies it makes sense to note the British pound: the GDP/USD pair is strengthening again, trading a little above 1.291 after statements by Bank of England representatives, trending toward 1.295. The EUR/USD pair is trading with no definite trend around the 1.14 mark. Note that the currencies’ moderate stability, despite the strengthening of the dollar, is causing the EU stock market to fall. At the time of this writing, European indexes are trading down, with a loss of about 0.3%. Britain's FTSE 100 is also down more substantially. European investors are also watching the evening’s data from the United States and comments from Fed representatives, the results of which are unknown at the time of this writing.

Yuri Prokudin, Olymp Trade analyst

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