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Tory Poll Lead Narrows Sharply - Video Update
31 May 2017
S&P 500 and NASDAQ break winning streak
31 May 2017
Sterling swings on polls - PM Bulletin
30 May 2017
Equities drift after long holiday weekend - AM Briefing
30 May 2017
Crude oil slumps on OPEC disappointment - AM Briefing
26 May 2017
OPEC disappoints while FOMC minutes provide cheer - Video Update
25 May 2017
OPEC expected to agree 9-month extension - AM Briefing
25 May 2017
Look-ahead to OPEC - Video Update
24 May 2017
Markets quiet ahead of FOMC minutes and OPEC - AM Briefing
24 May 2017
Crude oil update - OPEC meeting in focus - PM Bulletin
23 May 2017
Markets shrug off atrocity in Manchester - AM Briefing
23 May 2017
Equities mixed, but supported by oil
22 May 2017
Nerves steady after firmer close on Wall Street - AM Briefing
19 May 2017
Political fall-out continues to weigh on markets - Video Update
18 May 2017
Slide in European indices accelerates - AM Bulletin
18 May 2017
Trump’s woes hit markets - Video Update
17 May 2017
Trump’s woes lead to market wobble - AM Briefing
17 May 2017
EURUSD hits six-month high - PM Bulletin
16 May 2017
Crude oil extends rally - AM Briefing
16 May 2017
US inflation data and retail sales in focus - AM Briefing
12 May 2017
Crude oil recovers after “flash crash”- Video Update
11 May 2017
Crude oil soars while equities drift - AM Briefing
11 May 2017
Are investors too complacent? - Video Update
10 May 2017
Investors rattled after Trump fires FBI head - AM bulletin
10 May 2017
Crude oil’s “flash crash” leads to OPEC desperation - PM Bulletin
09 May 2017
Equities rally as oil steadies - AM Briefing
09 May 2017
Forex: Top Ten Tips for beginners - Trading Guides
08 May 2017
Markets little moved after Macron win - AM Briefing
08 May 2017
Payrolls in focus - AM Briefing
05 May 2017
NFP look-ahead - Video Update
04 May 2017
FOMC hints at rate hike in June - AM Briefing
04 May 2017
FOMC look-ahead - Video Update
03 May 2017
Apple disappoints on sales numbers - AM Briefing
03 May 2017
CFD Trading Tips - Trading Guides
02 May 2017
European traders return after May Day - AM Briefing
02 May 2017
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Crude was a touch weaker in early trade this morning. The sell-off followed news that President Trump has proposed selling off half of the US’s 688 million barrel strategic petroleum reserve. The proposal is part of the budget which is set to be delivered to Congress today. There is currently a legally required minimum inventory threshold of 450 million barrels which would have to be tweaked first.  But if the sell-off were to go ahead it would take place between 2018 and 2027 and raise around $16.5 billion. The proposal is being viewed as a big vote of confidence in the ability of the US to ramp up future production. However, the prospect of more supply from the States comes just ahead of Thursday’s crucial OPEC meeting in Vienna. This is where OPEC, together with a number of significant non-OPEC producers, is expected to announce an extension to timetabled output cuts. Recent statements by officials from Saudi Arabia and Russia have suggested that next month’s expiry of the 1.8 million barrels per day production cut agreed at the last OPEC meeting could be extended by nine months to the end of March 2018. That would mean all affected parties agreeing to cuts lasting 15 months, rather than the original six.

On top of this timeline extension, Saudi Oil Minister Khalid Al-Falih is also hoping to persuade a couple of smaller oil producers to join in with the production cut agreement. This, he argued, would be enough to bring supply and demand back into balance by the end of the first quarter next year. There’s also been a suggestion that not only will the timeline for cuts be extended, but also the size of cuts, above and beyond 1.8 million barrels per day. However, it’s worth noting that the Kuwait Oil Minister has just said that deeper cuts have not been discussed. And while there’s a fair amount of consensus over a six-month extension, there’s some push-back against a nine-month one.

Putting all this together suggests that expectations are running high ahead of this week’s OPEC meeting. If this is all priced in, then there’s certainly scope for disappointment. In addition, US shale producers are continuing to boost production. Yesterday Goldman Sachs reported that the number of active drilling rigs is up by 404 over the past twelve months, or 128%. US crude production now comes in around 9.3 million barrels per day - a 10% increase from this time last year. And it’s likely that the US will continue to boost production, which means that the OPEC/non-OPEC countries involved in the output cut agreement will struggle to push oil prices much higher from current levels. As we can see from the weekly chart of WTI below there’s resistance around $54, and the last time oil has traded above $60 was just under two years ago. It currently seems unlikely that crude could maintain such high levels given the likelihood that US shale oil production will offset any extension to OPEC and non-OPEC output cuts.

Chart courtesy of


Posted by David Morrison

Category: PM Bulletin

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