We expect momentum in the energy sector and resource-related currencies to continue into 2018. In this mid-quarter update to investors, we analyze what this means for the market. In summary:
- Oil prices are testing resistance, and if they can break out, there is significant upside.
- Oil prices do well when the US Dollar declines.
- As a result, traders are bullish on crude. Now higher US production is occurring alongside falling inventories. US producers appear to be winning the shale war.
- As inventories normalize, prices should rise.
- Rising oil prices are detrimental for the relative performance of certain geographies and sectors.
- Rising oil prices are good for both developed and emerging market energy companies, causing stock prices to rise.
- Globally, the energy sector outperforms the broader equity market when crude prices are rising. This explains why the relative performance of the energy sector globally is flat to up since June.
- There are numerous names in both the developed and emerging markets where the relative performance is over 80% correlated to oil prices and relative prices are not making new lows.
- Across the world, there are numerous currencies that have a correlation of greater than 80% with oil prices.
- We expect momentum in the energy sector and resource-related currencies to continue into 2018.
Download the complete set of slides here: Special Report on the Energy Sector.