When stripping away all the philosophy, the pompous rhetoric, and the jawboning, all central banks do, or are supposed to do, is to influence capital allocations and spending behavior by adjusting the liquidity preference of the population by adjusting interest rates and thus the demand for money.
Oil prices around USD 30/bbl mean that an increasingly significant volume of future oil projects no longer make sense. Although Deutsche Bank does not expect US crude inventories to reach capacity, rising US inventories and high US crude imports may heighten downside pressures to push prices closer to marginal cash costs of USD 7-17/bbl for US tight oil.
With few plausible scenarios for a strong price recovery in the short term, Deutsche lowers their Q1-2016 price forecasts to USD 33/bbl for WTI and Brent.
Following years of QE-inspired excess returns, investors in 2016 suddenly find themselves embroiled in a broad and brutal bear market. As BofAML's Michael Hartnett notes, the 10-year rolling return loss from commodities (-5.1%) is currently the worst since 1938...
Oil peak-to-trough -80% past four years, EM currencies trading 15% below their 2009 lows, yield on US HY bonds up from 5% to 10% in past 18 months, and equal-weighted US stock index down 25% from recent highs...
“The paradox of Norway’s oil exports is that lower foreign earnings translate into more, not less, demand for NOK.”
That’s from Deutsche Bank and it sums up the conundrum facing Norwegian officials as they attempt to cope with the sharp decline in crude prices that threatens to cripple the country’s economy.
With markets in a sharp correction to start 2016, market commentators nevertheless still hold a downside bias for gold. The rationale for this downside has shifted however, from a fear of FED normalization to a fear that deflation and associated asset-capitulation would take gold lower in a "dollar short squeeze", reminiscent of gold's sell off in 2008. With a well-grounded framework for analyzing the gold price, we fear neither rationale; we still view a significant fall from today's level an unlikely outcome, or temporary at best.