What is happening in the commodities market? - Oil
In recent months, there has been a strong focus on precious metals, especially gold and silver. Since 2000, gold has outperformed the S&P 500 index. Active traders tend to gravitate towards more volatile assets and other commodities have seen a reduction in volatility but now there is speculation of a more volatile autumn, particularly for oil prices. Join us this week as we take a closer look
Could US politics affect volatility
November's election not only has an impact on who will be the next President of the United States, but also on the stock and commodity markets for the coming year. Republicans have generally been more conservative in recent years on US energy supply and the view of not phasing out fossil fuels. The parties' views on the role of fossil fuels in society can also be seen in campaign donations. In the run-up to the 2024 elections, gas and oil companies have donated over USD 32 million to the Republican campaign, compared to just over USD 4 million to the Democratic campaign.
The Republican Party and oil and gas companies are now pressuring the Democratic campaign on issues such as how a new Democratic administration would deal with hydraulic fracturing (fracking) and how it views new LNG facilities. Depending on the outcome of the election, this could have a major impact on the US gas and oil sector and how much can be extracted in the future. Hydraulic fracturing is central to the production of natural gas from shale and shale oil, where 40% of natural gas comes from shale and as much as 64% of oil.
Are we heading towards a more volatile oil market?
Over the past six months, volatility in the oil market has decreased, despite the ongoing conflict in the Middle East and the risk of escalation. Many commodity traders are looking for volatility and the effect of low volatility can also be seen in the major commodity trading companies Gunvor and Trafigura, where revenues from oil trading are suffering. To get an overview of the volatility in the oil market, it is possible to analyse the OVX index, which is the volatility index on WTI with a maturity of 30 days. Since the recent lows with the yearly bottom in June/July, volatility has now increased.
What about Europe?
From a European perspective, Brent is the important future as it reflects North Sea oil. European players such as British Petroleum, Equinor and Shell can be seen relatively squeezed under current price and demand conditions. The current price is squeezing producers and analysts have revised target prices downwards for almost all European producers. Towards the end of the year, OPEC+ as well as European and American producers are expected to increase the supply of oil, which may have a negative effect on the price development of both the companies and the futures. However, it should be borne in mind that demand is also expected to increase in the event of a fall in the price of oil, and if the price were to fall to USD 70-75 per barrel, this could also reflect increased global growth and, in the long term, increased demand for oil. At the same time, there are concerns about the future of China's development and whether its growth targets will be met, with China accounting for around 13-14% of oil consumption.
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