NEWS AND ANALYSIS

Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Collapse 2017 <span class='blogcount'>(348)</span>2017 (348)
Expand November <span class='blogcount'>(26)</span>November (26)
Expand October <span class='blogcount'>(24)</span>October (24)
Expand September <span class='blogcount'>(33)</span>September (33)
Collapse August <span class='blogcount'>(26)</span>August (26)
Non-Farm Payroll look-ahead - Video Update
31 Aug 2017
Tech stocks lead market recovery - AM Briefing
31 Aug 2017
Fall-out from Jackson Hole - Video Update
30 Aug 2017
Investors shrug off North Korean missile launch - AM Briefing
30 Aug 2017
Gold breaks through $1,300 - PM Bulletin
29 Aug 2017
Equities slide after North Korean missile launch - AM Briefing
29 Aug 2017
Yellen and Draghi in focus - AM Briefing
25 Aug 2017
Jackson Hole look-ahead to key speeches - Video Update
23 Aug 2017
Wall Street surges on tax reform hopes - AM Briefing
23 Aug 2017
Euro slips, but range-bound ahead of Jackson Hole - PM Bulletin
22 Aug 2017
Equities recover in early trade - AM Briefing
22 Aug 2017
Equities under pressure as Trump struggles - AM Briefing
21 Aug 2017
Equities fall as investors find reasons to sell - AM Briefing
18 Aug 2017
ECB and FOMC minutes lead to FX volatility
17 Aug 2017
FOMC minutes viewed as dovish - AM Briefing
17 Aug 2017
FOMC minutes in focus - Video Update
16 Aug 2017
Fed minutes in focus - AM Briefing
16 Aug 2017
Sterling slips as inflation steadies - PM Bulletin
15 Aug 2017
Equities continue to recover - AM Briefing
15 Aug 2017
Gold: triple top or third time lucky? - PM Bulletin
14 Aug 2017
Stocks bounce as geopolitical risk eases - AM Briefing
14 Aug 2017
Bank of England rate decision in focus - AM Briefing
03 Aug 2017
Crude breaks above resistance - PM Bulletin
02 Aug 2017
Apple rallies 6% on strong report - AM Briefing
02 Aug 2017
Cable breaks above 1.32000 - PM Bulletin
01 Aug 2017
Apple to report after the close - AM Briefing
01 Aug 2017
Expand July <span class='blogcount'>(32)</span>July (32)
Expand June <span class='blogcount'>(28)</span>June (28)
Expand May <span class='blogcount'>(35)</span>May (35)
Expand April <span class='blogcount'>(31)</span>April (31)
Expand March <span class='blogcount'>(38)</span>March (38)
Expand February <span class='blogcount'>(36)</span>February (36)
Expand January <span class='blogcount'>(39)</span>January (39)
Expand 2016 <span class='blogcount'>(483)</span>2016 (483)
 
 
 Wednesday 02 August 2017

Crude breaks above resistance - PM Bulletin

 

 

This time last week the front-month WTI crude oil contract smashed above resistance around $47. This marked the 50% retracement of the May-June sell-off which followed the last OPEC meeting. Last week’s surge followed on from US inventory updates from the American Petroleum Institute (API) and the Energy Information Administration (EIA). Both recorded larger than forecast drawdowns in stockpiles of crude oil and gasoline.

Last week we also highlighted the significance of the $48.50 area. This marks the 50% retracement of the sell-off from the significant high hit back in February this year to the June low. This area also overlaps with the upper end of a trend line which marks a line of resistance in a downward-sloping channel that began forming in March. We suggested that if WTI could break and consolidate above $48.20/$48.50 then further gains were possible. This was not just from a technical perspective but from a fundamental outlook as well. At the beginning of last week ministers from six key oil producers met in Russia. Saudi Arabia promised to cut its exports by 1 million barrels per day (bpd)and ministers pledged to extend the current 1.8 million bpd production cut beyond March 2018 if necessary. Nigeria also agreed to cap output at 1.8 million bpd - just 100,000 shy of current levels. Since then WTI has made further gains and at the beginning of this week it broke and closed above the psychologically significant $50 per barrel level.

But yesterday WTI slumped back below $50 following reports that OPEC output in July rose by 210,000 barrels to 32.87 million barrels per day (bpd). Libya was the problem as it added 180,000 bpd in the month to take production up to 1.02 million bpd. Libya and Nigeria are the two OPEC members currently exempt from the agreed output cuts. Crude came under further downside pressure after the API released its latest US inventory update after last night’s close. This showed a 1.8 million barrel build in crude stockpiles and a large increase in inventories at the Cushing, Oklahoma hub. This followed four consecutive weeks of bigger-than-expected drawdowns. Analysts had expected drawdowns in both categories last night.

Earlier this afternoon the latest inventory update from the EIA proved to be another disappointment for the bulls. Crude inventories fell, but by less than expected. But total US oil product inventories rose by 1.1 million barrels last week, bringing to an end the four-week run of back-to-back inventory draws.

As we can see from the chart below, yesterday’s sell-off was sharp and unexpected, typical of the behaviour one sees when a market is a touch overbought. It only takes a bit of negative news to trigger a wave of selling. But so far the old line of resistance (now support) has not been broken. If this continues to hold for the rest of this week then the oil market has scope for further gains. On the flip side, if the selling pressure builds from here, leading to a significant break and close below $48.00/48.50 then a retest of the June lows can’t be ruled out either. 

uh

Chart courtesy of Investing.com

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. As a marketing communication it is not subject to any prohibition on dealing ahead of the dissemination of investment research, although Spread Co operates a conflict of interest policy to prevent the risk of material damage to our clients.”

 

Posted by David Morrison

Category: PM Bulletin


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.