Daily Commentary BY THE CURVE TEAM –

Oil Falls, Geopolitical Rumblings Continue

28th of May, 2018

The price of oil fell heavily on Friday night as talks of an increase in supply gather steam and concerns over price pressure on consumers builds. Meanwhile geopolitical rumblings around the globe continue to fester away with the risk of a mis-step growing by the day.

The price of the two key oil prices, Brent and WTI, both fell heavily on Friday night after the Saudi’s, Russia and OPEC signalled the potential for an increase in production levels when they meet in June. It comes as pressure on consumers has been building in a number of countries as the price of fuel at the pump has been increasing materially.

Before last weeks fall, the price of oil was up over 250% from the lows of February 2016. As prices rise, it starts to bring marginal players, such as the shale oil producers in the US, back in to the market so something was bound to give sooner or later.

Movements in the price of oil have large implications for inflation as well as consumption so it is something to keep a close eye on.

Geopolitics remains in the spotlight and is something we will continue to hear a lot about so it is something to get used to.

It appears the summit between the US and North Korea will go ahead, after the latter reached out to the South over the weekend.

Italy is still cause for concern with friction amongst the newly found coalition pushing the government towards a constitutional crisis. Spain is now being drawn in too with more elections there now on the radar.

The issues around the Iranian Nuclear Deal aren’t put to bed either with the Saudi’s trying to convince Germany to leave the deal in return for an increase in contracts being awarded to German companies.

Finally we have US Navy ships charting provocative routes through the South China Sea.

The chances of a mis-step on one or more of these fronts is growing materially and these are only the known unknowns.

It sets up for a big week ahead with plenty of data out locally and in the US to keep an eye on. The key words amongst all the mess that is going on are volatility and uncertainty and neither appear to be going anywhere anytime soon.

David Flanagan

Director - Interest Rate Markets