Industry players call bottom of oil price
The mantra over the past couple of years has always been “US swift recovery, Eurozone lackluster growth”. However, as we noted in previous newsletters, fortunes may be changing (click here). A strong indication hereof came when the US only recorded a meager 0.2% annualized GDP growth in the first quarter of 2015 (click here). The European Commission, on the other hand, is forecasting growth in 2015 of 1.5%, which would be the euro area's best performance since 2011 when it grew by 1.6% (click here). Unfortunately, it may not be time to get “europhoric” just yet (click here). Some of the larger European economies are stilling lagging behind (France and Italy), and worries of an impending Greek default persist (click here).
Nonetheless, the EU seems to be taking adequate measures on a number of fronts – not least legislation. For once, the European commission has decided to act boldly and sent Gazprom a “statement of objection” for alleged illegal market practices (click here). The Russian gas company, the main supplier of imported gas to the European Union, reacted defiant against charges of illegally overcharging its customers and muscling out rivals (click here). In addition, the European Union is also getting ready to abolish sugar tariffs in 2017. The first tangible effect of the upcoming liberalization came in April when France’s Tereos announced a takeover of Britain’s Napier Brown (click here).
Meanwhile worrying news keep coming out of China, where the country’s exports recently collapsed to a 13-month low (click here). In Renminbi terms, China recorded a 15% drop in March exports relative to the previous year, whereas economists had expected an 8% gain. China is already taking measures to boost its mining sector via tax cuts (click here), and the country’s aluminium industry will benefit from cheaper electricity (click here). However, as indicated by the recent rally in iron ore prices, the market seems to have missed the message of sustained Chinese supply (click here).
Crude oil is another commodity that underwent somewhat of a rebound (click here). Naturally, there has not been a shortage of statements to call the bottom of the oil price. The perceived optimism does not only come from hedge funds initiating big bets on an oil rally (click here), but also seasoned commercial players like Vitol’s chief executive Ian Taylor (click here) and BP’s former chief executive Tony Hayward (click here).
Therefore, an oil price rally must by imminent. Right? One could be tempted to think so if it was not for the often dismal record of so-called oil price experts. Bloomberg has in this regard compiled a list of statements on oil price predictions gone wrong. To take just one: "We have an $80 Brent case that is what we call our stress test," Hess CEO John B. Hess said in a Nov. 10 investor meeting. "We don't think $80 Brent is likely". Brent oil has since then average USD 60 per barrel, which undoubtedly will have been quite a stress test for Mr. Hess himself. Click here to read more.