Has OPEC thrown oil another lifeline?
WTI Crude popped higher during Tuesday’s trading session with prices clipping $46.68 after OPEC producer Saudi Arabia vowed to make deeper cuts to its crude exports in August and encouraged better compliance with supply reductions. The commodity was supported further by the overall optimism OPEC and Non-OPEC members displayed regarding the current production cut deal.
While Nigeria agreeing to cap production output by 1.8 million barrels a day has added to the optimism and inspired WTI Crude bulls further, investors should keep in mind that the meeting concluded with no deeper cuts made. With the OPEC meeting in St. Petersburg simply a renewal of commitment by OPEC and Non-OPEC members to respect their current production deal, oil markets still remain exposed to the oversupply woes.
With the persistent oversupply concerns still fuelling the bearish sentiment towards oil and markets remaining anxious over higher production volumes from other oil producers, WTI Crude is still at risk of depreciating further. The recent threat that an OPEC member such as Ecuador could have been considering leaving the production cut deal could create an undesirable domino effect and heavily strain the current production agreement. From a technical standpoint, WTI Crude remains under pressure on the daily charts below $47.00. A breakdown back below $46.00 may open a path back towards $44.50.
Investors cautious ahead of FOMC Statement
A sense of caution seems to be the theme for the financial markets as trading gets underway for the week, with investors braced and preparing for an incredibly busy week packed with both crucial economic reports and major risk events.
Asian stocks set the tone in early trade by trading mixed both Monday and Tuesday, with Europe likely to continue following a similar pattern. With Oil price vulnerability a reoccurring theme and a sense of uncertainty around the highly anticipated FOMC statement on Wednesday, we could continue to notice a weakened appetite from investors for riskier assets.
IMF downgrades US growth forecast for 2017 and 2018
Uncertainty over President Trump’s administration policies has prompted the International Monetary Fund (IMF) to revise down its US growth outlook from 2.3 per cent to 2.1 per cent this year and to 2.1 per cent from 2.5 per cent in 2018. Sentiment towards the Dollar was already turning increasingly bearish amid the political drama in Washington, as well as concerns over low inflation weighing on US interest rate expectations and the fresh IMF downgrade bombshell is seen as a risk to pressuring prices further.
Investors will direct their attention towards the pending FOMC rate decision this week which markets widely expect to conclude with rates left unchanged. With no press conference scheduled after the meeting, market players will closely scrutinize the policy statement for additional clues on when the central bank plans to normalize its $4.5 trillion balance sheet.
Commodity Spotlight – Gold
Gold edged to a four-week high at $1258.65 during Monday’s trading session on the back of Dollar weakness. With investors adopting a cautious approach ahead of an explosively data-packed and event-filled week, safe-haven assets such as Gold could come back into fashion. Although the rising prospects of tighter global monetary policy still have a grip on the zero-yielding metal in the longer term, short term bulls are currently in control. Technical traders may observe how Gold prices react to the $1260 resistance level this week. A break above $1260 should open a path higher towards $1268.
(By Lukman Otunuga, Research Analyst at FXTM)