SINGAPORE (Reuters) – The sharp decline in crude oil futures in recent weeks has been triggered by an onset of flooding as supply growth began to outstrip demand. However, it was also part of a broader retreat into risky assets in emerging markets such as Asian currencies and stocks.
FILE PHOTO: Ships off the south coast of Singapore on March 2, 2017. REUTERS / Edgar Su
These assets have performed well in recent years, driven by economic growth in countries such as China, India and Indonesia.
But the expansion of debt in many Asian economies, the tightening of US fiscal policies, and the Sino-US trade wars have led investors to vote with their feet, to pull their money out of assets like oil or Asian stocks, and instead focus on safer ones Ports like the US focus dollars.
As a result of this shift, oil markets have lost a third of their value since the beginning of October (LCoc1CLc1).
"Everything against the USD is currently under pressure," said Gregg McKenna, an independent asset market analyst based in Australia.
(GRAPHIC: oil against dollars – tmsnrt.rs/2R8L4ih)
Billions of dollars were pulled from crude futures.
"Traders reported surrender and liquidation," ANZ Bank said Monday in a note.
It added that the net long positions for crude oil futures, which would benefit from rising oil prices, "fell to their lowest level in three years".
And the traders seem to be preparing for more falls.
US managed short positions in US crude oil futures CLc1, which would benefit from further price declines, rose from record lows of around 14,100 lots of 1,000 barrels in July to nearly 110,000 lots by mid-November. This is the highest number of short positions since October 2017.
(GRAPHIC: US Crude Oil Price and Short Positions – tmsnrt.rs/2Rjq7Sc)
In addition, the number of put options that give a trader the option of not selling a financial instrument at a given price in February is set at 5500 LCO crude oil futures of $ 55 and LCO5000N9.050 per barrel since October Record level has risen.
Likewise, the price of such an option has risen as the demand for them has increased.
(GRAPHICS: Options for Brent Options – tmsnrt.rs/2R9W1jK)
WIDE DOWN TURN
The same pessimism is also evident in Asian markets.
"The year 2018 clearly marked the end of the 10-year Asian credit market as financial conditions in Asia (especially China) worsened," Morgan Stanley said in a statement released on Sunday.
"We still do not believe at the end of the cycle," said the US bank.
His Peer J.P. Morgan said on Friday that "the decline in US and global stock markets is shifting risk appetite more significantly down".
J.P. Morgan said the parallel slump in equities and commodities, including crude oil and industrial commodities such as iron ore and metals, is worrying.
ANZ Bank said: "China's steel futures posted their fourth weekly decline as investors increasingly worried about weak economic growth."[O/R]
(GRAPHIC: Oil prices against Asian stock exchange – tmsnrt.rs/2R8dwku)
Beyond the financial markets, there are also signs of a decline in world trade.
More than 90 percent of all products are transported by ship from the producer to the consumer.
Here prices for containers CHT-IDX-HARPX, which transport finished goods, and prices for bulk carriers, which transport raw materials such as coal or iron ore .BADI, fell by 26.4 percent and 38.35 percent respectively from their 2018 highs as shipping levels in the midst of economic headwinds.
"Slowing growth in the US would dampen demand for exports from Asia, which could weigh on cargo," said Eastport Eastport Shipbroker on Monday.
(GRAPHICS: Shipping rates have fallen since August 2018 – tmsnrt.rs/2RdZv4G)
Reporting by Henning Gloystein; Additional reporting by Gavin Maguire; Arrangement of Joseph Radford