Oil prices stay high as buffer remains uncomfortably low

Oil prices are expected to remain high over the forecast period as the EU/US sanctions and oil embargo targeting Iran’s oil exports and economy will continue to be a bullish factor for oil prices through a tightening of oil fundamentals and elevated geopolitical risk.

Indicators of economic growth and oil demand growth have moved higher, while liquidity-boosting measures from the world’s most powerful central banks increase appetite for risk assets, including oil prices.

Brent oil price forecast for 2012: USD 124/barrel and for 2013 USD 129/barrel

Three risk scenarios:

1. Arab Spring hits Saudi Arabia

Eelevating protests and political turbulence in the oil-rich Eastern provinces of Saudi Arabia are expected to spread to the rest of the Kingdom. The short-term effect of the supply disturbance is projected to push oil prices up by 100% to USD 250/barrel. The severe supply disruptions will call for an IEA SPR release.

2. Political Uprising in Iran

A sharp fall in Iran’s income finally triggers a new wave of opposition against the regime. The potential price spike from the supply disruption and reduced Saudi Arabian spare capacity is estimated at 40%, pushing oil prices up to USD 170/barrel.

3. Chinese Property Bubble Bursts

A dramatic slowdown in the Chinese economy with significant growth ramifications for the Asia/Pacific region as a whole. We assume Chinese GDP growth falls to 3% this year to depression-like levels by Chinese standards, while the Asia/Pacific region experiences growth at 2%. An isolated demand loss of 0.8% of global oil consumption is estimated to result in 30% lower oil prices, bottoming at USD 85/barrel in Q4 2012.



Latest research

Swedish Morning Briefing - Friday 25 April

• Kerry harshly criticises Russia • US mortgage loan demand at 14-year low

FI Eye-Opener: Spanish economy rising from the ashes

US yields continue to fall – more gains for bonds in store today. Rising Eonia signalling money market tensions increasing. S&P puts Russian investment grade status in jeopardy – Fitch raises its outlook on Italy. Draghi spells out policy options – threshold for further easing not great. Improving German confidence old news – Spanish GDP growth picks up. Denmark scraps negative policy rates. US consumer confidence and LTRO repayment data ahead.

Euro Rates Update

The latest Euro Rates Update is now available

Denmark: Surprise surprise - the hike is here

A short while ago Nationalbanken announced that with effect from tomorrow, the deposit rate reads +0.05% rather than -0.1%. In the press release, Nationalbanken highlighted that capital outflow in the FX market was part of this decision. It is unclear to what extent Nationalbanken has intervened in the FX market in the current month.

Germany: improving confidence old news – next week’s inflation numbers more important

A rise in the German Ifo index, together with yesterday’s PMI numbers and an estimate that Spanish GDP growth picked up clearly in Q1 are further signs that the Euro-zone economy is picking up momentum. However, it will be next week’s inflation numbers that are more crucial in determining ECB easing expectations and thus the near-term course for markets.

Swedish Morning Briefing - Thursday, April 24

• IMF expected to endorse 17 billion dollar loan to Ukraine • Riksbank minutes from April meeting due out at 9:30 today

FI Eye-Opener: Dovish Draghi to deliver more soft words

Bonds record some gains – yields to fall further today. Euro-zone PMIs continue to show resilience – US new home sales plunge. Spain to revise its borrowing needs down. European Commission confirms Greek primary surplus – further debt relief ahead? German Ifo and Draghi’s speech ahead. Plenty of bond auctions in store.

Euro Rates Update

The latest Euro Rates Update is now available

TRY: Regime change?

Despite a clear recovery in the Turkish lira, the situation in Turkey continues to be riddled with uncertainties and the potential for market-unfriendly surprises – especially in the political arena, where Prime Minister Erdogan may be fiddling with an overhaul of the political system.

Volatility Watch

Was that a pre-warning of QE or just loose talk? The latest ECB meeting managed to both disappoint (by delivering nothing) and excite (by laying the groundwork for something big) action seekers in the market. The truth is likely in the middle, and we expect no immediate easing from the ECB. We have seen a rebound, albeit modest, in gamma vols. Early vega options (1y-2y expiries) are moving down quite quickly Overall we still see the gamma segment as cheap, whereas we’re rich/neutral on vega.

SEK Rates: SGBi auction preview

The Swedish National Debt Office will sell 1 bn SGBi 3108 (1 Jun 2022) on the 24th April

Euro area PMIs: a good start into Q2

Higher PMIs in April, both in manufacturing and the service sector. Germany strong, France weaker.

SEK FI & FX Strategy - Market Views

A re-cap of market views...

Swedish Morning Briefing - Wednesday 23 April

• Kerry warns Russia to tone down its rhetoric • Chinese PMI looks set to rise

China: Not yet spring for the PMI

China’s flash PMI rose unsurprisingly to 48.3 in April. On the backdrop of favourable policies to small companies, the improvement is likely to continue in the coming months, but PMI is likely to stay below 50 because of excess capacity and debt overload.

FI Eye-Opener: China not rebounding like it used to

Bond markets with a rather calm day after Easter. Bonds with more potential in the near term. Intra-Euro-zone spread narrowing not run its course. Chinese PMI still depressed. Downside risks to today’s PMIs. Portuguese and US auctions ahead.

Preliminary Prepayments

Preliminary Prepayments

RUB: mixture of capital outflow, Central Bank’s policy and geopolitics

RUB has been under pressure recently as tsunami of capital outflow, caused by the threat of sanctions against Russia, washed away optimists and buyers of RUB-denominated assets. The pace of capital outflow increased in Q1 2014, reaching unimaginable $51 bn. (compared with $62.7 bn. in 2013). The volatility stays high on the Russian markets and the rouble remains focused on geopolitics.

Sweden: March Labour Force Survey better than it seems

Unemployment remained unchanged at 8.1% in March (seasonally adjusted). This was above forecasts at 8.0%. However, employment rose more than forecast and was up 0.3% m/m after an uptick of the same magnitude in February. Thus, the higher than expected unemployment reading in March is (once again) explained by unexpected strong growth in the labour supply, +0.3% m/m.

Swedish Morning Briefing - Tuesday 22 April

• Deal clinched during Geneva meeting • Ingves says deflation not likely