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Oil price likely to fall post Paris attack on fears of declining demand

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 16, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - A series of attacks that rocked Paris on Friday night will hinder the French government’s efforts to concentrate on improving the economy as the focus will now shift to strengthening its borders. Post the attack in Paris the value of stocks, crude oil and the European currency fell today as investors worried that the Paris terror attacks will serve a blow to consumer confidence and other key aspects of the global economy. Oil prices could also fall on fears that demand will dip.

    The attack will discourage travelers from visiting Paris or other major cities. This decline in tourism in Europe could further weaken the euro.

    Fall in demand post the attack may further lead to oil price slide

    The markets this year witnessed a global oil glut that resulted from excessive supply. Healthy demand has been the major factor preventing the prices from sliding any lower than the current six year low. The demand-supply dynamics might change post the attacks. Demand for gasoline and jet fuel will likely witness a drop because people might now choose to cancel their trips with safety concerns working as a major discouraging factor. This will lead to oil prices to hit further lows as business owners continue to fear that demands will drop. Amrita Sen from Energy Aspects believes that given the current sentiment being bearish, it will further hurt demand and in the process cause oil price to fall.

    Impact of geo-political tensions on oil price

    If the Western coalition begins targeting IS-run oil fields and refineries in response to the attack, they would run the risk of destroying the already very low oil supply from Syria. Also, the oil supply can be further affected if NATO allies go to war against the IS in Iraq and Syria. ISIS too might disrupt the flow of oil if it attacks Saudi or Iraqi oil production or shipping in the Suez Canal.

    An OPEC delegate mentioned that rising geopolitical tensions could provide some support to the mid-term oil prices. As per the delegate, any action taken by the international community to reduce smuggling of oil and to hit oil facilities under Islamic State's control in Syria and Iraq will re-balance demand supply dynamics and bring back prices at expected levels .

    Markets to recover soon

    Market experts believe that the impact will not be long standing. In the past the U.S. market had taken just one month to recover from the 9/11 attacks. The U.K. market rebounded in one day after the 2005 London bombings.

    Howard Archer, an economist at IHS Global Insight rightly put across market sentiments when he said “"As horrific as these events are - and this is truly awful - economic activity does tend to be pretty resilient. At the end of the day, people have to get on with their lives”. Stocks can be expected to start recovering after about a week.
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