Oil prices edged higher during Tuesday’s trading session, as investors pondered over what “extraordinary measures” OPEC may implement to rebalance oil markets in the medium to long-term.
Although the commodity got off to a rough start last week, after traders questioned the sustainability of the rally, recent comments from OPEC stating that there are clear signs that markets were rebalancing, have supported WTI crude. With OPEC’s Secretary General Mohammed Barkindo almost pleading for U.S. shale oil producers to help reduce the global supply glut, could the tough tug of war between U.S. shale and OPEC be coming to an end?
It has certainly been a tricky year for OPEC, especially when considering how U.S. shale production soared nearly 10%, despite the cartel's valiant efforts to cut supplies to prop up prices. Although Saudi Aramco plans to make “the deepest customer allocation cuts in its history” by cutting 560,000 bpd next month, its impact could be diluted if the U.S. shale producers see this as a Christmas gift.
As we head deeper into the final trading quarter of 2017, investors will continue to scrutinize markets for any fresh details on the “extraordinary measures” and signs of OPEC extending its production cuts beyond March 2018.
From a technical standpoint, WTI crude has staged an impressive rebound from the $49.08 level. A decisive breakout above $51.00 should encourage a further incline towards $52.40. In an alternative scenario, sustained weakness below $49.00, which is also under the 50-day Simple Moving Average, may open a path towards $47.80.
Catalonia independence in focus
A sense of caution was felt across the European markets on Tuesday, as investors waited to see whether Catalonia would push for independence from Spain later in the day.
Catalonian President Carles Puigdemont will be in the spotlight as he addresses the region’s parliament in Barcelona on the independence referendum this evening. Markets will be paying very close attention to his tone and choice of words during his speech. The euro is likely to find itself under immediate selling pressure if Puigdemont makes a unilateral declaration of independence; it appears that many are predicting this move.
Technical traders will be observing how the EUR/USD reacts above the 1.1680 support level and 1.1850 resistance level. Sustained weakness back below 1.1680, should open a path towards 1.1600 and 1.1500.
Currency spotlight – GBPUSD
Sterling extended gains against the Dollar on Tuesday, following data showing stronger than expected factory performance in July and August.
Manufacturing production rose 2.8% in August, year-on-year beating the 1.9% market consensus, while July was also revised higher to 2.7%. The positive data is likely to boost hopes of the Bank of England raising UK interest rates in November and this could support Sterling in the short term.
Taking a look at the technical picture, Sterling/Dollar is in the process of a technical bounce on the daily charts. The upside momentum may push prices higher towards 1.3230 and 1.3270, respectively. The possible creation of a new lower high around the 1.3270 38.2% Fibonacci retracement level may encourage sellers to jump back in to attack the 1.3150 level once again.
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