Can Opec revive oil bulls?
THERE was little excitement in the oil markets during Tuesday’s trading session; with investors on guard as the Organization of Petroleum Exporting Countries (Opec) and Non-Opec members discussed compliance levels on their output cut agreement, in Abu Dhabi.
Market players seem unfazed by the constant Opec chatter, with scepticism increasing over the cartel’s plans to improve compliance after Opec output hit a 2017 record high and exports marked a record.
While Opec remains optimistic that the current supply cut agreement may eventually rebalance the saturated markets, the lagging compliance from Iraq and resurgent production in Libya are threatening to undermine efforts made by the rest of the group to prop up oil prices. With Ecuador already pulling out of the Opec agreement due to financial pressures, the clock is ticking and it will take more than pledges for the cartel to support oil prices moving forward.
If nothing new is brought to the table in the Opec meeting and investors are left empty-handed once again, WTI Crude is at risk of depreciating further, as oversupply fears attract sellers. The bearish bias towards oil remains intact amid oversupply concerns and there is a risk of the Opec deal falling apart before March 2018, if members do not see oil prices recover.
From a technical standpoint, WTI Crude has found comfort in a wide range on the daily charts with US$48.50 acting a support and US$50.30 a resistance. A breakdown below US$48.50 should encourage a further depreciation towards US$47.00. In an alternative scenario, a breakout above the US$50.30 resistance should encourage a further movement towards US$51.00.
Commodity spotlight — gold
Gold bulls were back in action on Tuesday, with prices spiking towards US$1,264, as the US dollar lost its post-NFP (non-farm payroll) mojo. With the economic calendar fairly light in the first half of the week, price action is likely to dictate where the yellow metal trades — with intraday bulls eyeing US$1,270. Much attention will be directed towards the US inflation numbers later this week, which should offer some clues on the pace of monetary tightening by the Federal Reserve.
Concerns over stubbornly low inflation have clouded the prospects of another US interest rate increase this year and investors will closely scrutinize the inflation figures to see if they have picked up. A soft inflation number below market expectations, should punish the dollar and dent expectations of higher US interest rates — resulting in a boost of gold prices. From a technical standpoint, gold bulls were back in control after prices traded above US$1,260. A daily close above US$1,260 should encourage a further increase towards US$1,270. In an alternative scenario, repeated weakness under US$1,260 should encourage a further depreciation towards US$1,240.
Lukman Otunuga is a research analyst with FXTM.