This week, forex traders got caught between tough Greece debt renegotiation and the relatively calm volatility in the market. However, commodity market that often went unnoticed actually hid another threats that may incite new turmoils on other assets' price movements this year. It is especially true for world oil price that currently stuck around 45-60 USD per Barrel.

This week, forex traders got caught between tough Greece debt renegotiation and the relatively calm volatility in the market. Uncertainty reached a new high with the suspension of Greece discussion with the Euro leaders till Monday. However, commodity market that often went unnoticed actually hid another threats that may incite new turmoils on other assets' price movements this year. It is especially true for world oil price that  currently stuck around 45-60 USD per Barrel.

Harga
Since the fourth quarter of 2014, world oil prices have fallen from over 100 USD/barrel to around 40s and trigger many panics. Oversupply due to the US Shale oil production boom and Saudi Arabia's effort to defend its market share are faced with lower oil demand as global growth slowed. All stakeholders refused to step back and compromise, so oil prices drop like flies. Consequently, oil producer countries threatened with recession and major deficit. Meanwhile, a number of oil consumer countries worried on how cheap oil will push inflation lower. 

Early this month, oil prices started to come back up, but analysts do not think it the reversal yet, nor oil prices will consistently go up. Contrarily, analyst from CITI predict oil prices will continue to fall till 20 USD per Barrel. Is this a good news, or not?

1. Fight For Market Share

Main movers for the current world oil prices is mainly fight for market share among oil producers. In this case, countries with the biggest asset to survive till the end are US and Saudi Arabia. As longa s the two countries has not shown any willingness to back down, commodity market will be pushed to defend falling prices up to the point where oil producers will have to cut production or close down oil rigs in less efficient location.

For now, there are already a number of workers being laid off as companies are trying to streamline their business. Investment and oil rigging have also started to be reducted. Even so, it seems that the two countries' power in producing oil at any price is still undeterred. Weekly data from the US showed continually increasing oil production. According to the newest report from Energy Information Administration (EIA), US oil reserves rose beyond expectation as much as 4.9 million barrel to 417.9 million barrel last week. The same data said that total amount stored by refineries, traders, and other companies is in highest level in 80 years.

In the circumstances, if oil price slips again, then everything can happen. Oil is a vital component in every country. For oil importers, this is a golden chance to reform their energy policy; but for exporters, it revealed fundamental weakness that may trigger long-term impact. Among countries that has and will continue to be disadvantaged by cheap world oil prices are Canada, Russia, Venezuela, and Iran.

2. Threat of Disinflation

Aside of the uncertainties about when world oil price will reach bottom and turn back up, oil price drop sharpen the threat of disinflation, both in countries that already suffer stagnation and those that are still going forward. Bank of Canada Deputy Governor Senior, Carolyn Wilkins, have disclosed concern that cheap oil may increase downside risk of inflation. That, in addition to Canada position as disadvantaged oil producing country, has raised speculation that the Bank of Canada may have to consider additional stimulus. 

Minyak
Disinflation also has became serious challenge for Europe and Japan. Further pressures to prices possibly could support economic recovery, but in short term, it has potentials to worsen disinflation. Ahead, the two region may have to maintain stimulus or even up the amount.

3. Few Benefits For Global Slowdown

Oil importers like Europe, Japan, and China, theoretically benefits from cheap oil prices. However, some analysts predict the three could not benefit much from the current world oil price. The problem lies in the global slowdown. Amid slowdown, European and Japanese most likely will pocket the change instead of spend it. Analyst from Moody's also recently said that energy tax and government-managed prices will minimize the benefit of cheap oil for China. Moreover, as Vencent Chan from Credit Suisse wrote in Barron's, cheap oil will not help China companies profits as it met with various obstacles.

The ones to benefit from cheap oil are emerging markets that have been suffering high inflation, such as India and Indonesia. But near the Fed rate hike that is expected this year, those countries also under threat of capital outflow and high benchmark interest rates. In the circumstances, any advantages might be limited.


Generally, the market now is still waiting till oil price will touch its lowest low, where significant reversal can happen consistently. But it may also be important to consider the  possibility that world oil price is currently looking for its equilibrium and will stay within 45-60 USD per barrel for some time forward. Till that equilibrium found, other casualties may drop. Commodity dollars in particular, have been under significant pressires from cheap oil in recent months.