Has OPEC Breathed New Life into Oil Bulls?

WTI Crude was bullish so far this week, with prices finding comfort above $52.00, writes FXTM’s Market Analyst, Lukman Otunuga.

OPEC and Russian producers have committed to removing approximately 1.8 million barrels per day from the market. The resulting rise in oil prices (the commodity has charted a 15% increase in the past three months) has renewed investor confidence in the cartel’s ability to rebalance the market’s long-term.

We may see further upside in the short-term, but rising production from Nigeria and Libya is likely to pose issues further down the line. Iran has already called on OPEC to instigate an upper limit to oil production in both countries. Nigeria alone has increased production by approximately 500,000 barrels per day, up from March’s low of 1.2 million barrels.

Existing oil cuts are currently slated to expire in March 2018. An extension of three to six months may be enough to rebalance the markets, but we will likely have to wait until next January, to see whether an extension to the global accord is likely. OPEC’s commitment to addressing the current oversupply is commendable, but it still faces the same problems it has had since oil started to weaken in 2014. Namely, US Shale.

The American shale industry is an ongoing scourge for OPEC producers. The EIA’s September drilling report suggested that the Permian Basin alone is on track to pump 2.580 million barrels per day this month, and could hit 2.635 million in October. Rising oil prices are only likely to support growth in rival supply.

From a technical standpoint, WTI Crude fulfills the prerequisites of a bullish trend on the daily charts, with consistently higher highs and higher lows. The breakout above $52 should encourage a further appreciation towards $52.60 and $53.00 respectively.

Gold Punished by Fed hawks

As expectations mount that the Federal Reserve will raise US interest rates in December, gold found itself under renewed selling pressure on Tuesday. The yellow metal is well known for its sensitivity to US rate hike expectations and, as December looms and speculation over the Fed’s response mounts, there is a further downside on the cards for the safe haven.

Geopolitical concerns, not least the simmering tensions between the US and North Korea, remain an ongoing theme. Gold prices jumped to $1315 from an intraday low of 1291 on Monday after an aggressive comment released by North Korea. The price action suggests that bears are overlooking these pressures in the short-term. The metal secured a weekly close below US$1300 last Friday, giving technical bearish traders the signal they needed to attack. With the MACD in the process of crossing to the downside and prices trading below the daily 20 SMA, the metal remains bearish on the daily timeframe.

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