Oil will Struggle Post OPEC Rally

The world’s largest oil producing cartel, OPEC, seems to have come to an accord to cap the level of oil production between 32.5 million and 33 million barrels per day. This is a shade under the 33.5 million barrels produced last month and mere drop in the bucket. The implantation details, which a scarce to begin with, include the assignment of output for targets for individual OPEC members. The exact details of these targets remain unknown and undecided. They will be addressed at the cartel’s official meeting to be held in November. This accord only came about because Saudi Arabia agreed to grant their regional rival, Iran, an exception. It is more than most likely that the current optimism being seen in the markets will begin to erode and give way to skepticism which, in turn, will undermine any meaningful follow-through in crude or linked commodity currencies.

OPEC is hardly the dominant supplier of the black gold that it used to be. Any deal will be mute and will bust if large producers, the most notable being Russia fails to sign onboard. Supply from the United States is also rising as the number of active rigs hit a seven month high last week. The deal can also go bust if countries like Iraq, Libya and Nigeria, who a recovering from recent disruptions refuse to sign off on the supply limits and targets next month.

The down move in oil and sentiment currencies, like the Canadian Dollar, Australian Dollar and New Zealand Dollar, instead of firming if Federal Reserve rate bets rise amid a flurry of commentary from Fed officials echo Chair Janet Yellen’s dear promise of tightening in December. She reiterated this promise in remarks yesterday. Remarks continue into the close of the week with three branch presidents, George, Harker and Lockhart. Bank Governor Powell is also on deck to speak. There was also an upgrade in the second quarter gross domestic product (GDP) from 1.1 to 1.3 percent could also  hurt the US Dollar as well as other linked currencies.

Interesting enough, the price action with the almighty Buck has been rather quiet the last couple of days. There have been some rather interesting technical developments with several key markets like WTI US Crude, WTI Brent and the Japanese yen. Each one of these financial markets carry a lot of weight with other global financial markets and for much of the year have been trying to carve tops or bottoms as traders try to catch the next big market move.