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Oil tumbles as markets eye OPEC meeting; Dollar waits for NFP

The past few weeks have certainly not been kind to Oil markets amid oversupply concerns and fears over slowing global growth negatively impacting demand. Rising production from US Shale
Lukman Otunuga

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The past few weeks have certainly not been kind to Oil markets amid oversupply concerns and fears over slowing global growth negatively impacting demand. Rising production from US Shale, the US issuing waivers to eight countries before sanctions on Iran came into effect and worrying signs of slowing demand all led to a brutal selloff on WTI Oil and Brent Crude. With Oil prices trading at such depressed levels, markets expectations remain heightened over OPEC cutting production in an effort to stabilize markets.

The current environment certainly presents a strong argument for OPEC to limit production in a bid to stop Oil prices sinking into 2019. While a cut is on the cards, the question on the mind of many investors will be how much will be cut and how it will be split among OPEC and non-OPEC members. Markets are projecting OPEC to cut production by roughly over one million barrels per day from November’s level. A cut that is in line with market expectations will be supportive of Oil prices. However, if OPEC disappoints by leaving production unchanged, Oil prices will be seen tumbling sharply.

While the near-term outlook for Oil hangs on the outcome of the OPEC meeting, the medium to longer term outlook remains open to question. Rising production from US Shales, lingering fears over excessive supply and threat of trade tensions negatively impacting global growth remain dominant theme that will continue pressuring Oil markets.

Dollar on standby ahead of NFP

Away from the OPEC meeting, the Dollar is likely to remain in a narrow range ahead of the US jobs reports scheduled for release on Friday. The Dollar was attacked from all directions earlier in the week after an inversion of the US Treasury yield curve stimulated fears over the US economy decelerating. Sentiment towards the Greenback could still swing in favor of the bulls this week if the US jobs report ticks all the boxes. A strong NFP figure coupled with signs of accelerating wage growth in November will reinforce expectations of higher US interest rates in 2019.


Commodity spotlight – Gold

Where Gold concludes this trading week will primarily depend on the pending US jobs report released on Friday.

A strong US jobs report for the November will be positive for the Dollar as expectations heighten over the Fed raising rates in 2019 – an outcome that is seen negatively impacting zero—yielding Gold. Alternatively, a disappointing report will dilute speculation over higher US interest rates ultimately pushing Gold prices higher. In regards to the technical picture, Gold prices are bullish on the daily charts. A decisive breakout and daily close above the $1240 resistance level, may pave a path towards $1248 and $1260 respectively.

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