Monthly Market Report - July 2016
22nd June 2016With commentary from David Stevenson
I have no intention of boring readers senseless with any more observations on the Brexit vote (my recent FT Weekend article looked at most investment angles relating to this increasingly depressing debate) but the dreaded day draws ever closer. And the bad news is that the once constant stream of email alerts and surveys about what might happen next is turning into a veritable tsunami. Every day now comes with at least five to ten unrevealing (not that that is a word) revelation or anaylsis about what investors should do - and how they'll be impacted. Thank god it'll all be over soon. Or will it? Talk that pro-Remain MPs might block exit from the common market if we leave, or that Brexit MPs might demand a rerun if there are any more substantive EU treaty changes will cause many international investor's to shudder. Markets abhor uncertainty and if there is even a whiff of post June 23rd creative anarchy, markets might take a hit.
Turning away from matters European, for this observer the biggest story has been energy. It looks increasingly like we may have turned a decisive corner when it comes to oil prices. With Brent moving above $50 a barrel, we would appear to have retreated a long way from the dark days of the winter when bears (me included) were muttering about oil at $20 a barrel. What's noticeable is that in the past few months, there has been some incremental improvement in the fundamentals, but I'd suggest that the world remains oversupplied by 1-2 million barrels per day (b/d). U.S. production has begun to decline and is now nearly 500,000 b/d below the peak levels of last year, after the dramatic reductions in capital spending since the beginning of 2015. OPEC and the International Energy Agency (IEA) both indicated in their most recent monthly reports that they expect demand to grow this year by about 1.2m b/d. This, combined with expected declines in non-OPEC production of approximately 700,000 b/d, should bring the crude oil market into a healthier balance by year-end.
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