Kim Cramer Larsson
Areas covered in this webinar by Saxo Bank technical analyst Kim Cramer Larsson include EURUSD, USDJPY, GBPUSD, EURGBP, gold, silver, S&P 500, the Nasdaq, the Dax, the FTSE and the Dow Jones.
Article / 11 August 2015 at 11:53 GMT

Oil under pressure as China devalues

Head of Commodity Strategy / Saxo Bank
  • Commodities will be further hit by China devaluation
  • A weaker CNY makes commodity imports more expensive
  • Increased Opec production adds to pressure on commodities 

By Ole Hansen 

Commodities, currently reeling from oversupply and signs of slowing demand from China, received another knock today. 

The People's Bank of China's surprise decision to devalue the RMB by 1.9% has increased the focus on the global "currency war". China-dependent commodities, especially crude oil and industrial metals, are suffering as more expensive imports could reduce demand even further. 

The dollar initially strengthened on the news and this provided commodities with support, but as the news sank in people began contemplating whether it could further reduce the need for higher US rates. 

The deflationary impact of cheaper imports has combined with the potential negative impact on the pace of US job creation. A rising dollar, which has reached a record against a basket of EM currencies, erodes exporting companies' competitiveness.

With this in mind commodities made a quick turnaround with crude oil and HG copper once again challenging the recent lows. 

WTI crude oil (CLU5: $44.3-1.5% at 12:55 CET)
WTI Crude oil
Source: Saxo Bank 

HG Copper (HGU5: 234.4 -2.3% at 12:55 CET)
HG Copper
 Source: Saxo Bank 

The raised level of uncertainty the Chinese decision has created have general led to a risk off move across asset classes with movements currently going against the prevailing trend. Bond yields and stocks are lower while precious metals have received a boost with funds holding a near record short position have been scaling back exposure.
Spot gold: $1,112 +0.7% at 12:55 CET
Spot Gold
Source: Saxo Bank

Not helping oil markets today has been the news that Opec production reached a 3-year high last month. The increase in output to 31.5 million, well above its stated 30 mn barrel/day target, was triggered by Iraq and especially Iran where production was increased to the most since 2012. 

Iranian oil output is forecast to rise by as much as 1mn 
b/d within one to two years. Photo: iStock

– Edited by Oliver Morrison

Ole Hansen is head of commodities strategy at Saxo Bank


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