Keep an eye on oil

Craig James

I consider the oil price to be the single most import chart to watch today. OPEC oil producers still appear committed to the production agreement but US oil producers are adding to global supplies and keeping downward pressure on prices. The chart is telling me that oil prices looked to have peaked. It is hard see prices rallying further given the lift in US supplies and increase in exploration - as evidenced by increases in the number of oil rigs in operation.

The implications for investors are two-fold. Firstly that lower oil prices would prove negative for the energy sector, while being positive for transport, consumer durables and consumer staples.

Secondly, a weaker oil price would be unhelpful by bringing back disinflationary or deflationary risks and thus weaken consumer, investor and business sentiment. The rising oil price had been instrumental over the past year in adding a much-needed modest inflationary pulse to the global economy.


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