October 6, 2022
Each day roundup of analysis and evaluation from what The Globe and Mail’s market strategist

Each day roundup of analysis and evaluation from what The Globe and Mail’s market strategist Scott Barlow

BofA Securities world economist Ethan Harris says “there isn’t a clear off-ramp for Russia,” setting the stage for months of investor uncertainty,

“If we consider the specialists, Putin would have by no means invaded, Ukraine would have supplied weak resistance and sanctions can be restricted. Trying forward,this lack of steerage makes it exhausting to place chances on consequence … Nonetheless, retaining the outdated benign baseline and saying “dangers are closely skewed to the draw back” is just not very helpful … In our view, that is clearly not a short lived risk-off occasion that the economic system and markets shrug off and return to enterprise as typical… Our commodity strategists estimate that lower than half of Russian exports could possibly be changed by US shale, Iran and OPEC+. Nonetheless, costs might stabilize at elevated ranges if Russian exports get redirected to China … The important thing to the worldwide outlook is just not what occurs to the Russian economic system, however how sanctions and the Russian response to sanctions impression commodity markets … A lot of the rise in vitality costs up to now is because of danger premiums, however costs might go a lot increased if full towards sanctions Russian vitality exports are put in place … Baseline [market case] : An unpleasant stalemate. With Russia refusing to depart Ukraine, present sanctions stick and extra are added, together with some restriction on oil exports. The sanctions keep in place indefinitely, though Russia finds methods to bypass a number of the restrictions. For instance, they might reroute a few of its oil exports to China. Quarterly common Brent costs peak at $130//bbl in 2Q, and common $110/bbl for the 12 months. They then drift again under $100 in 2023. Uncertainty weighs on confidence notably over the primary half of the 12 months.”

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“Harris: “There isn’t a clear off-ramp for Russia, therefore our base case assumes many months of excessive uncertainty” – (analysis excerpt) Twitter

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Reuters vitality columnist John Kemp described the present vitality scenario as “greatest shock since Nineteen Seventies,”

“Petroleum inventories have been depleting at an unsustainable fee even earlier than Russia’s invasion of Ukraine and the disruption of Russia’s petroleum exports in response … Inventories are actually 99 million barrels (8%) under the pre-pandemic five-year seasonal common for 2015-2019 and on the lowest seasonally for seven years .. Gasoline shares are near regular however shares of crude are 51 million barrels (11%) and distillate shares are 30 million barrels (21%) under the pre-pandemic five-year seasonal common…The mixture of sluggish development in manufacturing, fast development in consumption and now sanctions has created the basic situations for a spike in costs … Essentially the most outstanding factor is just not how excessive costs are in the meanwhile however that they haven’t already spiked a lot increased. In actual phrases, Brent costs are the best since September 2014, however they’re nonetheless solely within the eighty fifth percentile for all months since 1990.”

“Oil market caught in greatest shock since Nineteen Seventies: Kemp” – Reuters

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BMO chief economist notes that oil costs hit a report excessive in Canadian greenback phrases this week, “a nightmare for shoppers”

“Oil costs have pulled again meaningfully from the spike early this week, however that solely dulls the shock. Transformed to Canadian greenback phrases, WTI was nonetheless buying and selling at a hefty C$135 by late Thursday. This metric hit a report excessive on Tuesday, punching as much as C$159 per barrel, rising above the prior peak of $148 in July 2008. A 12 months in the past, oil was nearer to C$80. The report excessive in Canadian greenback phrases, at a time when costs are nonetheless properly shy of information in US$ phrases, displays the close to full delinking between oil and the loonie this 12 months. (When oil surged in 2008, the foreign money was buying and selling round parity.) Actually, the foreign money has been negatively correlated with oil costs up to now in 2022, in a full reversal from the previous twenty years. This delinking is a windfall for home producers, however a nightmare for shoppers.”

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“Oil in CAD units new report (BMO):” – (analysis excerpt) Twitter

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Column: “A plunge in rising market shares suggests the TSX is in bother. However this time is completely different” – Barlow, Contained in the Market

Diversion: “Does your boss actually care what you assume?” – BBC

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