Crude Breaks Through Support but Prices are Oversold

Crude oil prices broke through support as trader’s await the June 22 OPEC meeting.  OPEC has been relatively tight lipped, as inventories continue to stabilize.  The dollar eased helping to buoy crude oil prices despite a stronger than expected U.S. jobs report last Friday.

Technicals

Crude oil prices broke down on Monday, pushing through trend line support and poised to test the 200-day moving average at 59.51.  Resistance is seen near the former breakdown level at 66. Prices are oversold as the fast stochastic prints a reading of 2, well below the oversold trigger level of 20 and could foreshadow a correction. The MACD (moving average convergence divergence) index is printing in the red with a downward sloping trajectory which points to lower prices.

OPEC is Mum

Several OPEC oil ministers who met over the weekend just three weeks before the June 22 meeting in Vienna that could result in an easing of the oil production cuts declined to tell media what the prevailing sentiment in the cartel was with regard to easing the cuts and raising production.

The only message the ministers cared to share with the media had to do with the need to continue cooperating and “sustaining the current partnership in order to continuously adapt to ongoing market dynamics in pursuit of the interests of consumers and producers.”

The tight-lipped behavior of the OPEC ministers is understandable in light of the latest price developments: last week oil prices plunged from three-and-a-half-year highs on reports that the Saudis and Russia may add as much as 1 million bpd of supply to offset crumbling Venezuelan production and possible loss of Iranian oil exports with the return of the U.S. sanctions.

The Dollar Weakened Despite Robust Jobs Report

The strength in the U.S. jobs report helped unwind a lot of the recent angst over trade tensions and geopolitical uncertainties that many investors feared were jeopardizing the global upswing in growth. Indeed, it’s now the case that forecasts for Q2 U.S. GDP growth are over 3% amid signs fiscal stimulus kicking in. The acceleration in the U.S. should override tariff worries, especially as the impacts of the levies are generally seen by many economists as limited. And the momentum should help offset the slowing out of Europe, especially as the uncertainties over the political situations in Italy and Spain have been resolved for now.

The markets are likely to be consolidative this week as a number of factors impact. The good news from the U.S. jobs report, which boosted Wall Street by about 1% on Friday, and the political clarity out of Italy and Spain which supported better than 1% gains in European bourses, should remain in play near term. Additionally, the on-again June 12 U.S. – North Korean summit should add good will. On the other hand, the markets will continue to fret over the tit-for-tat tariff spat. Indeed, the G7 finance ministers voiced concern at their recent meeting ahead of the upcoming Leaders’ Summit, noting they “regret the uncertainty caused by trade actions which run counter to the global of economic growth.” And they added “the tariffs imposed by the United States on its friends and allies, on the grounds of national security, undermine open trade and confidence in the global economy.”  Tensions will continue to simmer into the June 8, 9 Leaders’ Summit, which is likely to be one of the most strained in years.

SF Fed’s Williams said the gradual rate path should be maintained over the next two years

SF Fed’s Williams said the gradual rate path should be maintained over the next two years. And he added the FOMC is about 3 moves away from a “neutral” level. He, like others, including Chairman Powell, believes forward guidance has about run its course and less will be needed as “neutral” is approached. The Fed need not pause, either, once the 2% target is attained or exceeded, especially if the economy is still going strong. Williams will be taking over the important post of leading the NY Fed later this month.