Phillip Futures Research: Commodities Outlook for 2018
What should we expect from Crude Oil in 2018?
As the markets seek a global drawdown on inventory, oil prices have recovered considerably since 2014. OPEC and its partnering countries have been successful in driving up oil prices through a grand plan that emphasizes on supply reduction.
They have affirmed their commitment on an agreement extension till end 2018 and it has resulted in bolstering oil prices.
Key drivers for Crude Oil prices in 2018
Several key events have been flagged as market drivers for oil prices in 2018:
Saudi Arabia seeks to partially privatise the country’s most valuable asset with an IPO during the second quarter of 2018. A healthy depiction of Aramco’s financial valuation is essential for a successful IPO and Riyadh has been seen to pull all stops to ensure a tightening of market supply to bolster oil prices.
Chinese Crude Oil Demand
The middle nation is the biggest importer of crude oil in 2017 with total consumption reaching 12.2 million barrels per day(Bpd). Chinese oil demand achieved a growth of 700,000bpd against 2016 and is projected to rise firmly in 2018 amidst stronger market conditions. The raising of import allocation on its teapot refineries along with China’s one belt one road(OBOR) projects is expected to reinforce the global demand curve.
US Shale Oil – The Bear
US crude oil production has been forecasted to be at 9.92 million bpd in 2018 amidst stronger oil prices. US shale producers have been boosting output aggressively in tandem with oil prices. With a projected growth rate at 14%, OPEC and partnering countries have expressed fears that it will undermine their current efforts to rebalance the markets.
Should we temper our expectations for Crude in 2018?
In a nutshell, we are expecting stronger levels of support for oil prices in alignment with OPEC’s global production drawdown policy. The projected demand growth for China and Asia’s emerging markets will be able to balance out the added weight created by US shale oil production. We should see a gradual strengthening of oil prices as we maneuveur through the first half of 2018. Brent prices to be between $60 – $65 and WTI prices at $ $55 – $60.
Boon or Bane for Gold in 2018?
In comparison with 2016, a marked improvement was seen for the current year with gold prices albeit volatile market conditions and key market happenings. The precious metal which is reputed as a valuable safe haven experienced several price surges amidst geopolitical tensions in 2017.
So what should investors look out for?
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Focus should be placed on these factors in 2018:
US Federal Reserve
Jerome Powell’s inauguration as the next Fed chairman will take place in February 2018. He has signalled his intent to continue with his predecessor’s hawkish policy of interest rate hikes to support optimal inflation rates. Furthermore, US economic data has indicated positive market conditions which support the continuation of the Fed’s current monetary policies.
The dollar has received much support from the passing of the US tax reform bill and interest rate hikes in 2017. The gradual strengthening of the greenback is widely expected to continue with industry observers postulating between 2 – 4 interest rate hikes to occur in the coming year.
A new phenomenon has enveloped the financial markets, capital flow has been streaming towards the digital currency with Bitcoin reaching a market capitalisation of US142 billion. Cryptocurrencies are being touted as the next safe haven currency and as such, gold prices have been hurting in relation to the frenzied surge in bitcoin prices. Coupled with an exchange –launched euphoria on more cryptocurrency derivatives that is poised to take place in 2018, we may see a weakening in prices for the precious metal.
Does that indicate a bane in Gold prices for 2018?
Amidst expectation on interest rate hikes by the central bank in 2018, market volatility will always be a constant in the financial market equation. Investors will remain committed to the precious metal as a proven safeguard against market fluctuations.
Hence, we can expect a spike in gold prices when geopolitical tensions are on the rise and uncertain conditions are causing a sway in the markets.
This article is kindly contributed by Phillip Futures.
Phillip Futures is one of the region’s top brokerages for the trading of global futures, foreign exchange, energy, metals and commodity futures. It was established in 1983 as a member of PhillipCapital Group, and was one of the founding clearing members of Singapore Exchange Derivatives Trading. It currently holds the Capital Markets Services Licence issued by the Monetary Authority of Singapore (MAS).
Phillip Futures is also the first to launch the powerful MetaTrader 5 (MT5) platform in Singapore. MT5 offers advanced technical analysis tools and allows traders to create their own trading strategies