Oil market warning The emerging market crisis could push prices back below $60
- May 30, 2018 -

Saudi Arabia and Russia have just destroyed the rise in oil prices.But higher production does not necessarily mean that higher oil prices are completely impossible. In fact, the oil market still faces a lot of uncertainty.

If oil production from Opec/non-opec countries increases, oil prices seem unlikely to rise again.However, Bob Parker, a member of the Quilvest Wealth Management investment committee, told CNBC that a "complete collapse" in Venezuelan oil production could still push prices to $100 a barrel.

This echoes other predictions.Bank of America merrill lynch said that if the production of venezuela and Iran supply disruption occurred at the same time, the crude oil output will be reduced by 1.6 million barrels a day - then brent crude oil prices may rise to $100 a barrel.That said, there are potential factors that could prevent triple-digit prices: increased production in Russia, Saudi Arabia and the us's strategic oil reserves.

These, however, are primarily concerned with supply disruptions.Another possibility is the demand scenario, which has received less attention in recent months.Although oil traders focus is whether Opec/Russia will offset the disruption of venezuela and Iran, but the emerging market economies are forming cracks, which may threaten the oil market, this may prove to be more effective than crude oil output increase lower oil prices.

Fed rate increases and a stronger dollar will have a knock-on effect on emerging markets.A stronger dollar and higher interest rates put more pressure on local currencies.A weak currency makes dollar debt more painful, creating a vicious circle.Economist Paul Krugman says emerging markets' current problems are somewhat similar to those of the Asian financial crisis of 1998.

That may be good news for the United States, but bad news for many developing countries.The dollar has appreciated as the U.S. economy has changed from the rest of the world.Once again, the dollar has created a vicious circle, in this cycle, emerging markets are difficult to pay the dollar-denominated debt, and it also makes commodities, including oil becomes more expensive, which is traded in dollars.

Ultimately, in the worst case scenario, this could lead to a financial crisis.The government failed to pay its debts, the currency collapsed and economic growth stalled.Debt has become harder to repay.

If an emerging market recession emerges in the next year or so, it could coincide with the withdrawal of the Opec/non-opec coalition from the production cuts agreement or its gradual withdrawal.This means that as the supply of oil increases, demand is likely to decrease, which is clearly the cause of the drop in oil prices.If that happens, brent could fall below $60 a barrel next year, bank of America merrill lynch said

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