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Brent Crude Hits 16-Month High on Renewed Optimism Over OPEC Deal

By:
James Hyerczyk
Published: Dec 5, 2016, 18:21 UTC

Crude oil prices surged on Monday as investors turned optimistic that OPEC and non-OPEC members would shore up some issues regarding its deal to cut

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Crude oil prices surged on Monday as investors turned optimistic that OPEC and non-OPEC members would shore up some issues regarding its deal to cut production and the cartel would start tightening the supply market on schedule in January.

Since OPEC struck the deal last Wednesday to cut production, Brent crude oil has gained 19 percent and U.S. West Texas Intermediate crude oil is up about 16 percent. Earlier today, Brent crude rose above $55 a barrel for the first time in 16 months.

The terms of the deal call for OPEC to cut production by 1.2 million barrels per day starting in January. Non-OPEC producers are expected to agree to add an output cut of 600,000 bpd at another meeting in Vienna on December 10.

Earlier today, the markets traded lower as investors cast doubts that non-OPEC members would be willing to slash their production. Russia, for example, is toying with the idea of making its cuts based on November production levels. These happened to come in at their highest level in years. If it agreed to make a cut based on this level, it would only bring its output back to a peak hit earlier in the year.

Furthermore, it’s been reported that Transneft, Russia’s pipeline monopoly suggested on Monday a cut to oil output could begin in March.

Gold

February Comex Gold futures posted a volatile session on Monday as investors tried to figure out what Italy’s vote against reform and the subsequent resignation of Prime Minister Matteo Renzi meant to the direction of prices.

Initially, political uncertainty drove up gold prices, however, the market then dropped more than 1 percent after the Euro stabilized and U.S. stocks soared. Gold fell even though the U.S. Dollar Index dropped to its lowest level since November 17.

Forex

The EUR/USD recovered from earlier weakness on Monday after Italian Prime Minister Matteo Renzi’s loss in a referendum over constitutional reform came out as investors largely expected. The Euro plunged to a 20-month low initially, but rebounded due to technically oversold conditions and in response to the vote that 59.1 percent of the country cast ballots for “no” to reform.

Renzi is expected to resign from his position as Prime Minister, opening the door to a possible early election next year that could lead to an anti-Euro political party taking over the government.

Support for the U.S. Dollar continued to erode as investors adjusted their portfolio’s in reaction to Friday’s U.S. Non-Farm Payrolls report that strongly suggested the Fed may limit the number of rate hikes next year.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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