BAKU, Azerbaijan, May 26
By Leman Zeynalova – Trend:
A 5 percent depreciation in the trade-weighted US dollar (from 117.5 to 111.6) would bring $100 per barrel into focus by year-end, Trend reports with reference to the US JP Morgan Bank.
“The trade-weighted US dollar is next in line in terms of impact on the price of oil, with a beta of -2.76, implying that for each 1%-pt move in the broad US dollar index, Brent crude price moves by 2.8%-pt in the opposite direction. A 5 percent depreciation in the trade-weighted US dollar (from 117.5 to 111.6) would bring $100 into focus by year-end, regardless of fundamentals. This is not the central baseline of our FX strategy team (which instead envisions that the dollar will be supported to some extent by US exceptionalism). However, one scenario in which the dollar could weaken materially is if growth outside the US surprises well above expectations even as the US outlook stabilizes. By their estimates, a 5% weakening in the broad dollar index would likely require the global ex[1]US growth forecast to get upgraded by 1.1%-pts without a change to the US growth outlook in the coming months, a 15% probability according to our economists,” reads the report released by JP Morgan.
The price of Brent crude oil briefly breached $70/bbl before a slew of headlines indicating constructive progress at the fourth round of US-Iran nuclear negations in Vienna dragged prices back down to around $66/bbl.
“Despite the recent pullback, option bets on oil prices rising above $100 for the December 2021 Brent contract have jumped after the record US CPI print last week, with open interest on calls nearly tripling in May. Oil traded at $100/bbl and above for several years in the early part of last decade but the $100 mark has been out of the market’s reach since 2014, when US shale producers began pumping millions of barrels into the market. Forecasts for $100/bbl are far from the current consensus. The median analyst forecast compiled by Bloomberg shows Brent staying at $65/bbl or below through 2024. Our own model calls for the Brent oil price to exit 2021 at $74/bbl and average $68/bbl for the year. But the model is as good as its inputs and in this note we analyze the conditions that would need to happen to get us up towards $100/bbl,” reads the report.
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