It is true that 2016 did not star of positively for the financial markets as uncertainty and volatility are dominant amidst geopolitical instability in the Middle East and concerns over the course of China.
Oil is the commodity which best illustrates the dangers and instability that currently reign in the markets. The prices of oil globally are moving upwards under the shadow of escalating conflicts in the Middle East, however at the same time and according to the Wall Street Journal, profits are profoundly curbed due to the weak economic data stemming from China.
The price of crude oil rose by 3% as the religious tensions caused by developments in Saudi Arabia are causing intense concerns with regards to the supply of oil in the area of the world which has the biggest production of this commodity. However, this rise was dampened considerably following the announcement of weaker than expected results of the Chinese manufacturing, while the ensuing drop in Asian stock markets has allowed the surfacing of concerns about decreased demand from the second biggest consumer of oil in the world.
It should also be mentioned that the increased tension in the Middle East could also seriously impact the much awaited return of Iran in the international oil markets, following the lifting of embargoes and sanctions against it.
Although tension in the region still remains mainly diplomatic, the risk factor has increased considerably. With two main OPEC member countries cutting off their diplomatic ties, it becomes extremely difficult to venture any sort of prediction about the future prices of oil, which had hit record lows in 2015 due to the oversupply of the commodity.
The expectation that 2016 will bring an increase in the exports of oil from Iran is a factor which is expected to exert further pressure on oil prices. The international agreement on the country’s nuclear programme is anticipated to bring the end of embargoes from the West on the sale of Iranian oil and according to analysts as well as Iranian officials, if sanctions are lifted the country is in a position to increase the daily world production by 500.000 barrels per day, at a time when the supply is already far greater than the demand.
At the same time, the weaker than expected results of the Chinese manufacturing sector and the fall of the Yuan exchange rate caused great drops in the prices of stocks with the Shanghai Stock Exchange recording a fall of 6,9%.
The announcement of poor results raises doubts whether the measures taken by the Chinese government to boost the growth of the second largest economy in the world are adequate, while many argue that the dive in China is exerting further pressure on markets globally.