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Will OPEC Decision Send Pound Sterling GBP Higher vs CAD & NOK?

December 7, 2015 - Written by Toni Johnson

Positive US Labour Market Data Supports December Fed Rate Hike Bets

Friday’s session saw significant developments in the global FX markets, with data from the US causing investors to price-in an increasing likelihood that American interest rates will be heading higher next week.

However, Friday also saw another development in different sector which could have a pronounced medium to long term effect on more than one of the sixteen most actively traded global currencies.

OPEC Decision to Weigh on Commodity Assets as Supply Growth Continues

The Organization of the Petroleum Exporting Countries (OPEC), whose members account for one third of the world’s production of crude oil, convened in Vienna on Friday.

Global wholesale oil prices have lost over half of their value during the past year and a half as OPEC has consistently refused to lower its combined level of output to help support the market.

Friday’s meeting brought confirmation of the continuation of this policy of free-flowing output, with Iran, in particular, providing strong resistance to calls from the organisation’s relatively poorer nations, (think Venezuela, Algeria and Ecuador), to cut supply an send prices higher.

The cartel’s decision to continue pumping out 32 million+ barrels per day marks the furtherance of a policy decided upon as long ago as 2011 when Saudi Arabia lobbied other OPEC members to keep production levels high in an effort to ward off a jump in wholesale prices in the wake of the Libyan uprising.

A secondary aim of the ‘low price’ policy was to stem the rapid expansion of the global shale gas production industry by making it less economically viable.

GBP to CAD, NOK Conversion Rates Predicted to Surge if Oil Shifts to $20 a Barrel

Iran's Oil Minister Bijan Zanganeh suggested on Friday that continuing high output from OPEC has not caused shale production to drop, but noted that neither has it ‘increased significantly.’

While the suspicion persists that OPEC’s policies are holding back the development of shale gas extraction, the incentive will remain for levels of crude production to remain high.

For this reason, venerable investment bank Goldman Sachs recently forecast that wholesale oil prices could drop to as low as $20 per barrel.

FX market analysts predict that such a shift lower for crude would send the Pound Sterling (currency : GBP) sharply higher against the Canadian Dollar (currency : CAD) and the Norwegian Krone (currency : NOK).
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