“Talks about reflation trade subside with slide in oil prices” comments Julius Baer’s Rücker

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Norbert Rücker, head Commodities Research at  Bank Julius Baer comments on the latest talks among investors about reflation trade and oil price slides.

“The Bloomberg Commodity Index dropped 5% in July erasing the asset class’ gains since beginning of the year. The talks among investors about the reflation trade with commodities have subsided. Crude oil was among the negative contributors. Brent prices slid from their mid-June highs at $115 per barrel to below $105 last week while West Texas Intermediate (WTI) prices even dropped below $98 per barrel last Friday.

Headwinds came from the fading of concerns about supply disruptions in Iraq, the partial return of Libyan barrels, the strengthening of the US dollar, softer-than-expected demand in Europe and China and last but not least the cooling of sentiment from very bullish levels.

West Texas Intermediate prices suffered from additional bearish factors including the fire and outage of a local refinery and the delay of new pipeline projects. We maintain our neutral outlook on oil in the near term but see downside risks later in the year. US refineries are operating at maximum capacities and are likely to fully absorb the shale oil glut throughout summer.

Meanwhile, the situation in Libya continues to deteriorate again putting the incremental recovery of oil production is at risk. In the medium term, however, we expect global supplies to exceed demand which should weigh on oil prices.

Easing supply concerns, a stronger dollar and softer-than-expected demand have been among the bearish factors weighing on crude oil prices recently. We maintain our neutral outlook in the near term but see downside risks later in the year.”

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