Top Story

Crude oil remains fundamentally supported

Both oil contracts managed to bounce back on Wednesday after suffering big drops in the first trading day of the year. Tuesday’s sell-off took most people by surprise as there was no fundamental news behind the move. It was likely triggered by a general “risk-off” trade that also caused stocks to decline. Equities bounced back along with oil prices by the very next day, but they have decoupled somewhat at the start of today’s session: oil is higher and equity markets are a little soft. Crude oil has been boosted in part by the surprisingly large drawdown in US oil stocks, as reported by the American Petroleum Institute. According to the API, oil inventories fell by a good 7.4 million barrels last week, much more than expected. If this is confirmed by official government data later on today at 16:00 GMT (11:00 EST) then crude prices may rise further as expectations are for a decline of ‘only’ 2.2 million barrels, according to Reuters.

Generally speaking, the focus remains fixated on the OPEC and the big deal now is whether the cartel and non-OPEC producers will honour their agreement or whether cracks will start to appear. I would be very surprised if producer nations breached their agreed quotas by noticeable margins because while that might be profitable in the short-term, it could be very costly in the long-term. Why sell more oil for less when there is a chance to sell less oil for more in the future? For that reason, I do think that oil prices will probably rise further in the weeks and months to come. Indeed, Iraq is already doing its part in trying to trim production by the agreed 200 thousand barrels per day, according to oil minister Jabar Ali al-Luaibi.

Thanks to a brighter fundamental outlook, oil prices made significant technical breakthrough at the end of last year as they finally broke out of their consolidation ranges. Unless prices now fall back into their old ranges, the path of least resistance remains to the upside for both contracts. Brent’s technical bias remains bullish above the shaded $52.80-$54.30 range, possibly towards the Fibonacci conflux area of $60.00-$60.50. WTI’s corresponding support range is at $50.90-$51.90 area. The latter was testing short-term resistance at $53.75 at the time of this writing.

Source: eSignal and FOREX.com.

Source: eSignal and FOREX.com.

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.