Saudi action implies further oil weakness

As Saudi Arabia's actions point to lower oil and a potential asset sale, the US consumer confidence has been relatively stable throughout 2015, and the FTSE 100 strives to end up in the green.

Oil field fire
Source: Bloomberg

Global markets are continuing the rally as we move closer to year end, with the FTSE 100 testing the 6300 level. Time is fast running out for the top UK benchmark to close out the month in the green, yet with the European Central Bank having fuelled a 6% weekly loss earlier this month, it is miraculous that the possibility remains relatively likely. Interestingly, today's FTSE rally comes despite a raft of austerity measures in Saudi Arabia which hints at preparation for further crude oil weakness in 2016.

Today’s decision from Saudi Arabia to implement its own form of austerity speaks a thousand words regarding its willingness to maintain the depressed crude oil prices through 2016. With some speculating that these latest measures imply a $45 crude price through 2016, there is little reason to believe oil prices – and thus commodity stocks – are going to rebound anytime soon.

Given the $98 billion deficit in Saudi Arabia this year, today’s measures are unlikely to be the last. A possible fire sale in the foreign assets held by sovereign wealth funds poses a real threat to Western cross-asset demand. Alternately, the Saudi’s could be the latest in a growing list of countries who remove their peg to the US dollar, which would have significant implications in terms of stability and confidence in a nation that is used to having its own way.

US consumer confidence rebounded in December, regaining much of the ground lost in November, which had initially been thought to have been the worst reading in 2015. However, the positive revision to the November number, alongside the strong December reading, portrays a stable 2015 for consumers which will no doubt provide plenty of positives for the Fed hawks out there. 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.