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Early last week both Brent and WTI crude contracts retested the highs hit back in early summer. In fact, Brent broke above its $52.80 June high but only managed to close above here for one session. WTI couldn’t quite push above its own upside target around $51.50/60. Subsequently, both contracts pulled back in what appeared to be a largely technical sell-off. Then the latest American Petroleum Institute (API) US inventory update showed a build in crude stockpiles for the first time in six weeks. But the sell-off failed to build enough momentum for oil to test downside support. Instead, the Energy Information Administration’s (EIA) inventory release the following day triggered a rebound thanks to large drawdowns in gasoline and distillates. We get an update on inventories from the API later this evening while the EIA reports tomorrow afternoon.

Crude is still trading close to resistance marked by the highs from June. Both contracts have had a lift from OPEC’s promise of production cuts. However, all the doubts that were raised after the announcement in Algeria last month still persist. Most notably, these concern which countries will end up shouldering the cuts; will Iran, Nigeria and Libya be exempt; how will OPEC ensure compliance and will non-OPEC countries such as Russia also take part? In the meantime it appears that every oil-producing country is pumping at full tilt in order to maximise revenues ahead of the OPEC meeting at the end of November. This is when the cartel is expected to finalise and announce details of the agreement. In the meantime, those June highs remain crucial in determining where oil goes next. WTI tends to adhere to technical levels more than Brent. If it can break and hold above $51.60 this week, then further gains look possible. Otherwise, we may be in for a spell of consolidation, or even a mild downside correction.

18.10.16


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Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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