Global weekly: In the grip of oil

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Oil price developments continue to grip markets. Failed talks between oil-producing countries, however, did not refrain investors from pushing major equity indices higher this week.

Macro update

Oil prices dropped following Sunday’s failed meeting between oil-producing countries in Doha, Qatar, although the impact was partly offset by a strike by oil and gas workers in Kuwait. Despite the failed Doha talks, the demand-supply imbalance in the oil market looks set to gradually ease during the course of this year. The latest inventory data from the US Energy Information Administration, released on Wednesday, showed that US inventories rose less than expected. This fits our scenario that the global oversupply of oil will likely decline during the course of this year, resulting in higher oil prices. We expect oil prices to reach USD 55 per barrel by the end of this year.

The European Central Bank (ECB) kept its policy on hold during its April meeting on Thursday. ECB President Mario Draghi said the March measures had led to an improvement of broad financing conditions. However, “global uncertainties persist”, while “the risks to the euro area growth outlook still remain tilted to the downside”. We think the ECB will probably need to do more, as inflation is set to undershoot its target for a long time and the recent easing of domestic financial conditions will likely not be sufficient to change this picture, especially since the euro has risen. However, we do not think further monetary stimulus measures will come until the second half of the year (likely in September).

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