Kuwait Finance and Investment Company (KFIC) reported that the collapse in oil prices, which are still up to this moment in sharp decline, is the most significant event that occurred on the performance of the FX and derivatives markets during the fourth quarter of 2014. Where the barrel of oil lost during the fourth quarter, approximately 40% of its price value. As the trading on the Brent contract begun last October on a level of $ 95 a barrel, and by the end of December of the same year, the trading closed at the level of $ 57 a barrel. This in return makes it difficult to predict where the oil prices is headed; as they are declining rapidly.
This decline comes as a result of the current political situation and the lack of planning. Furthermore, the growth in production of US companies from the shale oil extraction also contributed in the plunge of oil prices. And the main reason of the decline, is the contraction of the major economies of the world, most notably the Eurozone which in return increased the severity of the situation as well. The decline in the demand of oil is mainly attributed to the slow pace of the economy. Where the setbacks of production, negatively impact the demand for oil. Moreover, the lack of the economic diversity in the developing countries played a substantial role in the plunge of oil prices. The magnitude of oil production in light of the low oil prices, is looked upon as a glut, where the supply of oil is exceeding the demand.
In this context, Hamed Abu Saadeh, Manager of Mutadawil FX & Derivatives at Kuwait Finance & Investment Company stated: “The current situation calls for solid, and well-established strategy. In order to boost the global economy and to rectify the current crisis. Also, reducing the prices of oil is crucial at the moment. In order to facilitate the production process on the manufacturers, this in return will increase the demand on oil eventually, and help recover the global economy. The reduction of euro exchange rate is fundamental, to support the Eurozone through keeping interest rates near zero. The same thing applies to the yen, where reducing the exchange rate of the currency will prevent the deflation in the Japanese economy. On the other hand, the dollar exchange rate ought to be increased. In order to reduce the amount of capitals directed toward the US market; by keeping the interest rates in low levels. Also, it is essential to implement the quantitative easing in the Eurozone to inject liquidity into the market.”
On another note, the attainment of US markets to the highest price performance historically under the current circumstances, may result in a new crisis. As the strength of the US economy might signalwill attract all the existing investors who are looking to reap profits, this in return will cause an economic bloc.
Abu Saadeh then added: “The beneficiaries of the trading sessions in the fourth quarter of last year, are the investors who traded in financial derivatives through (Short Selling) feature. Short Selling enables investors to profit when a shorted security falls in value.”
It is noteworthy that KFIC provides an online trading through the Mutadawil.com serviceservice which enables clients to trade in global and GCC markets, as well as, FX and derivatives usingthrough reliable trading platforms.