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Using the RSI in FX - Trading Guide
31 Jul 2017
HSBC share buy-back helps lift indices - AM Briefing
31 Jul 2017
Amazon triggers tech tumble - AM Briefing
28 Jul 2017
Fed reinforces dovish credentials - Video Update
27 Jul 2017
Facebook results boost NASDAQ - AM Briefing
27 Jul 2017
Crude breaks above resistance - PM Bulletin
26 Jul 2017
Equities rally on positive earnings - AM Briefing
26 Jul 2017
Look-ahead to tomorrow’s rate decision from the Fed
25 Jul 2017
Alphabet/Google falls 3% in after-hours trade
25 Jul 2017
Equities start the week on back-foot - AM Briefing
24 Jul 2017
Euro surges on “hawkish” comments from Draghi - AM Briefing
21 Jul 2017
Equities firmer ahead of ECB meeting - AM Briefing
20 Jul 2017
Europe firmer after late US rally - AM Briefing
19 Jul 2017
US Fed turns dovish - PM Bulletin
18 Jul 2017
Dollar slumps on US healthcare gridlock - AM Briefing
18 Jul 2017
Wall Street leads equity rally - AM Briefing
17 Jul 2017
US bank earnings in focus - AM Briefing
14 Jul 2017
Yellen flip-flops to reassure investors - AM Briefing
13 Jul 2017
Oil rallies, but volatility high - Video Update
12 Jul 2017
Yellen to testify in Washington - AM Briefing
12 Jul 2017
A look-ahead to Janet Yellen’s testimony - PM Bulletin
11 Jul 2017
Second quarter earnings in focus - AM Briefing
11 Jul 2017
Jobs data boost sentiment ahead of earnings - AM Briefing
10 Jul 2017
Investors nervous; Non-Farm Payrolls in focus - AM Briefing
07 Jul 2017
Non-Farm Payroll look-ahead - Video Update
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Investors shrug off FOMC minutes - AM Briefing
06 Jul 2017
Look-ahead to FOMC minutes - Video Update
05 Jul 2017
Markets quiet and waiting for fresh guidance from US - AM Briefing
05 Jul 2017
Crude continues to push higher - PM Bulletin
04 Jul 2017
Dow closes at fresh record high - AM Briefing
04 Jul 2017
Positive start to second half of 2017 - AM Briefing
03 Jul 2017
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Yesterday crude oil rallied sharply to post its eighth consecutive positive close. This marked the longest stretch of back-to-back gains for Brent and WTI since February 2012. Crude oil has certainly staged a strong recovery after a disastrous month. Brent and WTI lost around 18-20% in the four weeks following the OPEC meeting at the end of May. The sell-off began as investors expressed their disappointment at the agreement reached by OPEC and non-OPEC producers. All sides promised to extend the 1.8 million barrel per day (bpd) output cut by nine months to March 2018. However, there was no appetite to make deeper cuts. This was viewed as a mistake. Global inventories remain close to record highs as oil production from parties not subject to the agreement has increased. US shale oil has risen sharply as has output from OPEC-exempted members such as Nigeria and Libya. Just last week Libya’s production hit a new multi-year high when it topped 900,000 bpd. Libyan officials expect output to breach 1 million barrels per day (bpd) by the end of July.

Yet despite these downside pressures, both WTI and Brent have recovered significantly since hitting multi-month lows on 21st June. There could be little doubt that both contracts were looking oversold and were due a bounce-back on some short-covering profit-taking. There were also a number of sparks which helped the recovery along. Firstly, there has been an uptick in US crude inventories over the past fortnight. On top of this last week US crude production registered its biggest decline since Aug 2016, dropping by 100,000 bpd to 9.25 million bpd. This put a dent in predictions that US output was set to top 10 million bpd by year-end. Also, the US oil rig count fell by 2 to 756, the first drop in almost 6 months. However, it may be too early to call time in US shale oil. The overall oil and gas rig count slipped in Alaska and Colorado. But it continues to rise in Texas which is the centre of US shale production. It’s also worth noting that despite a doubling in the rig count over the past year, there are still less than half the number of rigs operating when compared to the peak in 2014.

In addition, there are concerns that OPEC/non-OPEC production cut compliance could start to unravel. Firstly, there are growing tensions between OPEC members as Saudi Arabia squares off against Qatar. This could lead to a reluctance of OPEC members to act in concert with one another. On top of this Russian output tends to pick up over the summer which may be a reason to break their agreement, particularly as everyone is making less money with crude back below $50.

Technically, the current rally may need to catch its breath before it can make further gains. But even then there’s a chance that the upside from here could be limited. After all, we’ve seen a number of lower highs and lower lows since February. A daily WTI chart (courtesy of is shown below.

I’ve drawn on two Fibonacci Retracements. The first is from the high on 23rd February this year to the low on 21st June. The second is from the post-OPEC meeting high on 25th May to, again, the 21st June low. Both retracements suggest that last night the front month WTI contract ended close to the technically significant $47 level. This marks the 50% retracement of the May-June sell-off and the 38.2% Fibonacci Retracement (not, as the study suggests the 61.8% level) of the Feb-June move. Prices have pushed beyond here a bit this afternoon. But it’s well worth keeping an eye on this level over the coming few sessions. If crude begins to struggle to break away from here over the next few days then it could fall off once again. However, looking at the lower highs over the past few months, it may have a bit more upside to go first. Time will tell.


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Posted by David Morrison

Category: PM Bulletin

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