4 factors moving oil prices

Fiona Cincotta January 2, 2020 8:48 AM

Oil was on the front foot at the start of the New Year, however the push higher has been short lived.

Oil was on the front foot at the start of the New Year buoyed by the prospect of a signed US – China trade deal and rising tensions in the middle east, in addition to shrinking stockpiles and the start of deeper OPEC plus production cuts. However, the push higher has been short lived.

1. Middle Eastern tensions. An Iran back Iraqi militia withdrew from the US embassy in Baghdad after storming it in protest over airstrikes. Elevated tensions involving Iranian backed forces has increased geopolitical risk in the region. However, there is no immediate threat to Iraq’s oil supply so the move higher could be short lived.

2. Trade deal. The US – China trade deal is expected to be signed on 15th January. Strong indications that the first phase trade deal will be signed and formally entered into within the coming weeks is boosting sentiment towards the global economic outlook and to a degree lifting expectations for future oil demand.
Realistically though, traders will want to see this optimism reflected in stronger data before we see a meaningful advance in oil prices.

3. Production cuts. This month also sees the start of deeper production cuts agreed by the OPEC plus group at the end of last year. This move has already been priced in. Of more concern was data showing that Russian output reached a post-Soviet high last year. Despite curbing production under the OPEC plus agreement and being one of the architects, Russia has a poor record of fulfilling its pledge.

4. Fall US Inventories. A decline in US inventories last week lifted the price of oil. API report showed that US crude stocks fells 7.8 million barrels week ending 27 December, significantly greater than the 3.2 million forecast. Investors are now awaiting Friday’s EIA crude stock data for fresh direction

Levels to watch:
After starting 2020 on the front foot WTI is showing evidence of weakness. Falling volumes raise doubts over bulls strength going forwards. After failing to break through resistance close to $61.50, the bulls have lost momentum and WTI has seen heavy selling over the past hour. WTI has fallen below 50 SMA although remains firmly above 100 SMA and 200 SMA. Oil bulls need to push through $61.50 to open the door to $61.95 and $62.31. A breakthrough support at $60 could negate the uptrend.


TAGS:
Crude Oil Iran Middle East

Related Articles

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.