Barrel price has plunged to the lowest level, as OPEC extended the production cuts for an additional nine months and in fact, the cartel is starting from scratch in the fight of market oversaturation. Oil firms in the North America, hardened by the market collapse, have opted for a new competition strategy, abandoning the long-term expansion outlook and focusing on the current profitability. The EIA report on Wednesday showed that commercial inventories rose by 3.5M barrels, signalling an increase in the US production. The production volume in the US can reach a record 10M barrels per day in 2018, compared to the largest players in the market – Saudi Arabia and Russia. OPEC plans also were also upset by Nigeria, where the pipeline resumption has been idle for 15 months which means a 1/5 reduced volume (360 thousand barrels).
The Pound Sterling is completely unlucky with the elections in the UK. The two-day currency decline became the worst performance of this year after it became known that the leading party of Prime Minister May failed to obtain the majority of seats in the parliament. The trust in the Prime Minister’s party was also undermined by terrorist attacks in Manchester and London.
The minimum number of seats that provide the majority in the parliament is 326 seats. However, the voting results were as follows:
- Conservative Party – 316 seats (-12)
- Labor Party – 261 place (+31)
- SNP – 35 seats (-19)
The unexpected force alignments in parliament were known 10 days ahead of the EU withdrawal, which significantly complicates the search for a coordinated political position of the country in the run-up of negotiations on Brexit. It is not yet clear who will become the architect of the new independent UK, but investors will closely follow the news about the possible formation of coalitions in the parliament, as the two leading parties will seek support from smaller political forces to form a majority. There are no catalysts for Pound growth, so despite a significant decrease, the currency has every chance to go into large-scale sales in the medium term.
The comments of Draghi at yesterday’s meeting derailed the European currency, as the head of the ECB made it clear that rumours of the soon-winding QE are groundless and the European economy still needs to be fuelled by cheap credits. The volume of asset purchases and interest rates were left unchanged. The inflation forecast was lowered due to the weakness in the Oil market from 1.7% to 1.6% in 2019, expectations for the GDP growth increased by 0.1%. The pair EUR/USD holds around the level of 1.12, the euro index is trading without a certain dynamics.
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