January 25, 2022

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The noticeable drop in oil prices led to a decline in the main index on the Oslo Stock Exchange

The noticeable drop in oil prices led to a decline in the main index on the Oslo Stock Exchange

The main index on the Oslo Stock Exchange was down nearly one percent before 14.00 on Monday. The stock market recovered after dropping 1.6 percent from the start after the price of oil fell sharply.

Oil also rose slightly throughout the day, and on Monday afternoon it was trading at $70.30 a barrel, down just over five percent. Earlier on Monday, oil prices fell below $70 a barrel.

It’s one of the lowest points in the last month, at the same time that the price of oil has fallen more than ten percent since the end of November. The initial peak so far this year came at the end of October when the price was $86.12 a barrel.

The price of oil is up about 40 percent so far in 2021.

– As for the price of oil and the stock market, there have been big moves lately, and today the Asian stock markets are also falling a lot. Anders Johansen, chief strategist at Danske Bank, says the omikron variable and how demand will be in the coming year is the main source of uncertainty.

signs of weakness

According to Bloomberg, oil prices are showing signs of declining. And the news agency wrote in a comment that there are signs of weakness.

A phenomenon in the oil market called “contango” is a situation in which the expected price of oil in the future is higher than the delivery price of oil today. That is, the futures price is higher than the spot price. At the time of writing, North Sea oil for delivery within a month was trading at about ten or more of the spot price. According to Bloomberg, this may indicate that the market is crowded.

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In addition, lower trading volumes during the upcoming holidays will also be able to amplify any volatility, says chief strategist Johansen.

We don’t have a full week now, and with Christmas low, you’ll be more likely to change. I think we will continue to see volatility in the period we are in now, and until it becomes more certain how the omikron variable will affect demand.

Coinciding with the drop in oil prices on Monday morning, the krone has also depreciated against the euro, the British pound and the US dollar. One euro is now 10.2 kroner, five percent more than it was just two months ago.

China’s interest rate cuts

The Nikkei index on the Tokyo Stock Exchange is down nearly 2%. It is the same development in other exchanges that has also broadly declined.

China’s central bank also lowered its 12-month key loan rate by 0.05 percentage points – to 3.8 percent. This is the first rate cut since April 2020.

Next comes the interest rate cut in China Last week, the US Federal Reserve signaled three possible rate hikes over the next yearAt the same time the much-talked-about downsizing of support purchases has been accelerated. The plan now is to complete the support purchases in March.

– I think the market is still processing the message from the Fed last week. The central bank received much more than people expected, and few months ago thought it would signal a rate hike next year. A lot has happened there, Johansen says.

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Regarding the Federal Reserve’s meeting last week, the central bank was aware that rising inflation was the reason for this offensive announcement.

“The usual things”

As 2021 draws to a close, chief strategist Johansen said the usual things are now happening again. He highlights China, inflation and corona, but at the same time he realizes that the year as a whole has been very good.

— but much has been driven by American tech companies, which account for a large part of the revenue both in the United States and globally.

On the downside, he points to poor development in so-called emerging markets, with Johansen saying China was the main reason for poor development. It indicates, among other things, the tightening of the state towards companies in real estate and technology.

In addition to the three factors in common, China, inflation and the corona, very few people imagined the massive rise in energy prices we’ve seen this fall, especially for gas, but also for electricity. It’s clearly stifling growth, says Johansen.

New measures and lower demand

As is known, the discovery of a new omicron variant of the coronavirus has led to new measures here at home and abroad.

In many places in Europe, lockdowns have been imposed until the end of the year, while many countries have placed entry restrictions. Among other things, Germany has banned entry to travelers from the United Kingdom from today.

When the Corona pandemic first appeared, it caused a sharp drop in oil prices. The closure and lack of travel have resulted in an almost complete loss of demand for oil and petroleum products. Since April 2020, the lowest point in the pandemic when oil prices were below $20 a barrel, the price has risen above 220 percent. (Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.

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