Nokkie and Loonie feel the pain of OPEC postponement

The postponement of an important OPEC meeting does not bode well for the way in which member states adhere to agreements on production limits. The pressure on oil prices is robbing the Norwegian krone and Canadian dollar of upside potential for the time being.

In the summer it seemed for a while that a new recovery in the oil price would fuel inflation again. Between late June and early October, the price of a barrel of Brent oil rose from less than $75 to more than $90. After a slide that started in early October, the price fell back below $80 earlier this week. Partly because the Chinese economy is performing less well than expected earlier this year, demand for oil is under pressure. The futures market indicates that a quick recovery is not obvious. A contract for delivery in late 2024 is trading for less than $78. And by the end of 2027 that will be even less than $70.

Oil dispute in Africa
A lower price will make itself felt in the budgets of many oil-exporting countries. It therefore looked as if oil cartel OPEC would use last weekend's meeting to make agreements on production restrictions. Ultimately, nothing came of this. In the run-up to the meeting, some OPEC countries were so bickering that the organization moved the meeting to next Thursday. Some wrinkles will first have to be ironed out in a dispute between African countries, before it is determined how far the oil tap will be closed in 2024. In June, OPEC agreed with Russia that joint production would be limited by 3,66 million barrels per day at least until the end of next year.

Fumbling oil prices
The question is whether the oil price will rebound significantly if the organization cuts production again. In recent years, production in other countries - especially in the United States - has increased considerably. The ailing oil price is also echoing considerably on currency markets. The Norwegian krone and the Canadian dollar, among others, are under pressure there. The latter currency has fallen by about 5% since the end of September. In addition to lower oil revenues, the so-called loonie is also under pressure because Canada's economy is performing much less well than that of the United States. The business community has relatively more debt, so that the accrued interest also makes itself felt more strongly.

Interest becomes a spoilsport for the Canadian dollar
Economists are already taking into account that the Canadian central bank will cut interest rates significantly earlier than the Federal Reserve next year. And falling interest rates are usually a headwind for a currency. The Norwegian krone is not affected by this. In the autumn, for example, the Norwegian central bank hinted at an interest rate increase before the turn of the year. The different interest rate policy explains why the nokkie has been stuck in a bandwidth between €0,84 and €0,89 since the spring. And unless OPEC decides on Thursday to severely curtail production, no fireworks should be expected from oil currencies such as the loonie and the nokkie for the time being.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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