Short-covering Boosts Crude Oil, but Traders Still Concerned about Iranian Oil Supply

Short-covering helped boost December Crude Oil prices on Tuesday after a nearly week-long decline. Buyers may have also come in to defend the recent main bottom at $45.79. A trade through this level will turn the main trend back to down and could set up an eventual test of the major support at $44.31.

The long-term outlook is still bearish. OPEC is expected to continue to produce about 2 million barrels per day more than the market needs and is not even expected to address the overproduction issue until it meets on December 1.

Although U.S producers continue to close rigs, the operating rigs are currently producing more efficiently so the supply is barely being affected. Even so, as long as OPEC is filling the world’s needs, global supply is likely to remain at historically high levels.

Traders are also worried about the potential impact of the expected rise in the volume of Iranian crude supply that could hit the market as early as December.

A weaker U.S. Dollar helped boost December Comex Gold prices on Tuesday. Gold rallied after the Euro rose against the dollar. The rally in the EUR/USD was likely fueled by short-covering and position-squaring ahead of Thursday’s European Central Bank meeting.

The ECB is expected to give traders some guidance as to the timing of its potentially bearish extension or expansion of its current quantitative easing stimulus program. ECB President Mario Draghi is also expected to try to talk the Euro lower.

The EUR/USD also received a boost from ECB Governing Council member Christian Noyer who said on late Monday that no adjustment was needed in the bank’s quantitative easing program.

The GBP/USD traded flat-to-slightly lower ahead of a speech on Wednesday by Bank of England Governor Mark Carney. Carney is expected to spell out how Britain’s membership of the European Union (EU) affects the central bank’s ability to manage the economy and protect the country’s banking sector.

In other news, Federal Reserve Bank of New York President William Dudley said Tuesday that ensuring the viability of the $12.8 trillion U.S. Treasury market was key to effective implementation of monetary policy and emphasized the importance of regulators’ understanding of recent volatility and trading troubles.

Fed governor Jerome Powell said that some potential reforms could improve concerns about a perceived drop in bond liquidity.

Like Dudley and Powell, Fed Chair Janet Yellen did not comment on the outlook for the U.S. economy or monetary policy. Instead, she talked about the importance of the U.S. government’s labor-statistics agency.

On Tuesday, the U.S. reported that building permits in September were up 1.10M. This was below the 1.16M estimate and August’s 1.16M figure. Housing starts came in at 1.21M, beating the 1.14M estimate.