Global and regional equity markets encounter more volatility in coming weeks as crude oil descends its way to the keenly-watched $50 per barrel mark, analysts said.
On Friday, brent for February settlement dropped 91 cents, or 1.6 per cent, to close at $56.42 a barrel on the London-based ICE Futures Europe. It shed more than 45 per cent in value in 2014.
Oil output in Russia and Iraq surged to the highest levels in decades in December, according to data from both countries’ governments. The Organisation of Petroleum Exporting Countries decided to keep their output steady to retain market share and compete with US’ shale gas.
“I think we could see some additional weakness early on, also because the dollar is likely to continue its ascent during the first quarter,” Ole S. Hansen, Head of Commodity Strategy at Saxo Bank told Gulf News.
“Overall a quarter where the market will try to stabilise after some early weakness. On that basis, I see Brent crude trading between $55-$65 with the risk of reaching $50 early on,” said Hansen.
Osama Al Ashri, member of British organisation, Society of Technical Analysts also agreed.
“Brent crude will go below $50 this month, with supports placed at $47.90/44.20,” said Al Ashri, adding crude may recover back to $80 in 4-5 months.
Most of the oil-dependent countries in the Gulf have borne the brunt of falling oil prices on its budgets. Saudi Arabia and Oman budgeted a deficit in the budget presented on December 25 and January 1 respectively.
However, Dubai approved a no-deficit budget and spending at its largest since the global financial crisis at Dh41 billion, up 9 per cent from 2014. The budget for 2015 will have an operating surplus of Dh3.6 billion.
“The trend for crude oil is still bearish. The funds are still having long positions in New York, and that is making me more nervous of a bigger impending correction,” said Pradeep Unni, senior relationship manager with Richcomm Global Services, adding “gulf equities may face more correction.”
“Global markets would continue to do well in the positive in the near-term. The weakness in oil prices is slightly positive. We will see a lot more consumer spending, and there are a plenty of positives for the global economy,” said Saleem Khokhar, head of equities at NBAD’s asset management group.
The S & P500 rose 11 per cent to 2,058.90 after gaining in 2013 by the most since 1997. The Dow Jones Industrial Average ended 0.06 per cent higher at 17,832.99, after hitting a record of 18,103.45 earlier in the week.
“S & P500 may see new a target of 2,127 later in the month. I see a new target of 18,478 for Dow Jones Industrial Average this month,” said Al Ashri.