Will Higher Crude Oil Prices Send Pound Sterling Lower vs CAD & NOK in 2016?

December 21, 2015 - Written by Ben Hughes

STORY LINK Will Higher Crude Oil Prices Send Pound Sterling Lower vs CAD & NOK in 2016?

Bearish Crude Prices Weighing on CAD and NOK Demand

In spite of substantive continuing oil and gas production in the North Sea, the UK economy is not overly reliant on wholesale crude prices due to its diversified nature.

The fortunes of the Pound Sterling (currency : GBP) are therefore not significantly correlated with the global price of oil and gas.

However, the opposite is true for two of the sixteen major currencies – the Norwegian Krone (currency : NOK) and the Canadian Dollar (currency : CAD). Our leading oil sector analyst takes a look at the short-to-medium term outlook for oil, the NOK and the CAD below…

Oil Rout Continues as Prices Drop to $30 - $40 a Barrel Range

Commodities peaked in March 2011 – a date when many analysts feel that the super-cycle which they had been riding for more than a decade finally ran out of momentum.

The development left the oil price open to a correction lower; initially the downside move in crude oil prices which followed was a drift, but over the past 15 months, this has become a rout, with the price of a barrel of crude dropping from well above the $100 level to the middle part of the $30 - $40 range late last week.

Drop in Supply May see Crude Rebound but Oil Forecast to Hold Below $100 a Barrel Throughout 2016

The shift lower for oil prices was driven by mounting evidence of slowing demand from the euroland, China, Japan, and South Korea, and by OPEC’s steadfast refusal to limit levels of output.

In spite of the manifold imperfections in the market, the price of oil is ultimately determined by the forces of supply and demand and data published earlier this month suggested that producers not only in OPEC nations, but also in Russia and the USA, as well as Brazil, Norway, Mexico, and Canada, have responded to the slump in returns by curbing their level of investment.

This choking off of supply could be a catalyst to propel prices higher, but the analysis found that a return to $100+ was unlikely for 2016.

A significant development in recent days has backed this up, making any pronounced shift higher for crude unlikely for next year. US politicians voted on Friday to end the domestic ban on the export of oil and gas which had stood for four decades.

The move is unlikely to have an immediate effect on prices but, as purchasers adjust their buying habits and investment in pipeline infrastructure comes on tap, the additional supply on a global scale will serve to suppress prices.

The upshot is likely to keep levels of support for the oil-driven Norwegian Krone and Canadian Dollar subdued throughout 2016.

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TAGS: Canadian Dollar Forecasts Norwegian Krone Forecasts Pound Canadian D Forecasts