Crude oil prices have turned modestly lower for Friday’s trading, narrowing any gains seen for the commodity earlier in the week. Prices have specifically stalled as traders are beginning to call into question the production cuts previously promised by OPEC nations. Oil prices have initially strengthened into 2017 on expectations of these productions cuts, so any data to the contrary may cause crude oil to decline further off of the standing yearly high at $55.21.
Technically crude oil remains in a long term uptrend, as the commodity continues to trade above its 200 day SMA (Simple Moving Average). This average now stands at $47.24, which continues to stand as long term support for the commodity. Traders should be mindful however, that crude prices are now trading back below the displayed 10 day EMA (exponential moving average) at $52.61. Typically this is a sign of short term weakness, and if crude stays below this point it may suggest a further slide in price starting next week.
It should also be noted that today’s intraday price action has crude oil set to end the trading week with the creation of an inside bar. If the commodity closes at present values, crude oil would have failed to create a new high or low for today’s session. This means breakout traders may use Thursday’s high and low as values of support and resistance to plan for the markets next breakout.
Bullish breakouts may begin for crude oil above Thursday’s high of $53.47. A breakout above this point would place crude back above the previously mentioned 10 day EMA, and open up the market to retest the standing yearly high. Alternatively, Thursday’s low of $52.10 remains a key value of price support. A bearish breakout here would suggest that crude is retracing more of its previous gains, and open up a test of the standing 2017 at $50.69.
Analysts at BBH shared his views on the crude oil market and its recent developments, “Oil prices rallied yesterday following the EIA weekly data and are up further today. Despite the rise in US inventories (4.1 mln barrels) more than four times greater than expected, participants focused on other details. In particular, the stocks in Cushing fell by almost 580k barrels, while the market had been looking for an increase of around the same magnitude. Also, the 17.4 mln barrel demand by refineries was the most in nearly 30 years.”
Key Quotes “The bullish case for oil was predicated on rising demand, OPEC cuts and a natural decline in output in some countries, like Mexico. China’s economy appears to be stabilizing (with a continued robust increase in credit expansion. Europe growth appears to have accelerated in Q4. Earlier today, EMU reported industrial output jumped 1.5% in November, more than twice what was expected. Even if the output was flat in December, the industrial output is set to expand in Q4 by the most since Q4 2010. Japan’s November industrial output rose 1.5%, the most in five months. India’s output surged 5.7% year-over-year in November after contracting 1.8% year-over-year in October.”
“What has captured the attention of the markets today are the reports indicating that Saudi Arabia (and Kuwait) have cut output more than they were committed to delivering. The Saudi oil minister announced that output has fallen below 10 mln barrels for the first time in almost two years. Kuwait also reports that its output is a little less than it committed to as well.”
“At least for the moment, this addresses a nagging concern of many market participants that OPEC’s adherence to their agreements is often questionable. Of course, the risk of defections from the agreement increase as the price of oil increases. Also, the participation of non-OPEC countries, especially Russia, has yet to be seen. At the same time, US output is increasing. At 8.95 mln barrels a day, US output is the highest since last April. US producers have added about 100 new rigs since the end of Q3. Recall too that in 2015 and early 2016 some well were drilled, but then capped as if the producer was storing the oil in the ground.”
“The February light sweet oil futures contract set a low set on Tuesday and Wednesday (~$50.70) that met a 50% retracement objective of the rally since the OPEC agreement. It also matches the low from December 8. Prices have bounced smartly. However, the $53.50 area, which is being tested, needs to be overcome to suggest another run at $55.”
Crude oil price action seemed somewhat counter-intuitive yesterday. Prices launched higher after OPEC updated its 2017 market outlook to predict that output from outside the cartel will increase by 200k barrels, reversing a previous forecast that envisioned a drop of 150k barrels. One might have expected that the prospect of a supply increase would pressure prices lower, not send them upward.
A possible explanation may be that traders interpreted the announcement in the context of speculation that OPEC producers might agree to an output freeze at an informal meeting in Algiers this month. Traders may have reasoned that an accord is more likely if the group’s membership is growing more concerned about downside price pressure from outside their ranks.
Looking ahead, crude oil will look to the API weekly inventories estimate for direction. The report sent prices sharply higher last week. Gold may struggle to find lasting directional conviction amid a lull in Fed-linked news flow. The near-term bias may cautiously favor the upside as markets digest down-shift in the projected rate hike path following Governor Brainard’s commentary, but lasting follow-through may have to wait for US retail sales, inflation and consumer confidence data due later in the week.
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GOLD TECHNICAL ANALYSIS – Gold prices are treading water having retreated to a three-week low. A daily close below support in the 1303.62-08.00 area (May 2 high, 38.2% Fibonacci retracement) paves the way for a challenge of the 50% level at 1287.29. Alternatively, a move back above the 23.6% Fib at 1333.62 exposes falling trend line resistance at 1350.32.
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices paused to consolidate losses after signaling a possible top with the formation of a Bearish Engulfing candlestick pattern. Near-term support is now at 44.20, the 38.2% Fibonacci expansion, with a break below that on a daily closing basis exposing the 50% level at 42.73. Alternatively, a reversal back above the 23.6% Fib at 46.02 opens the door for a retest of falling trend line resistance, now at 47.53.
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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Global stocks held near a one-year high as rising oil prices bolstered investor sentiment following disappointing data in the world’s three largest economies.
U.S. equity index futures advanced, after retreating from a record in the last session as a report showed American retail sales stopped expanding in July. The Topix index fell and the yen strengthened after Japan announced slower economic growth than analysts forecast. The Shanghai Composite Index jumped by the most since May as takeover speculation outweighed Chinese figures showing a slump in new lending. The yuan fell for the first time in a week and U.S. crude climbed for a third day.
Stocks Hold Near One-Year High as Crude Rallies; Yen Strengthens – Bloomberg
Global equities are trading near a one-year high as evidence of uneven growth in the world’s biggest economies both unnerves traders and fuels optimism that central banks will come to the rescue by way of stimulus. The probability that the Federal Reserve will increase interest rates this year eased to 42 percent in the futures market on Friday following the release of the U.S. retail sales figures, from 49 percent a day earlier.
“The U.S. economy may have lost a bit of momentum on its way up,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Center. “Still, weak numbers mean concern over tightening recedes.”
The Stoxx Europe 600 Index was up 0.1 percent as of 8:24 a.m. London time. William Hill Plc declined 1.3 percent after the U.K.’s biggest bookmaker rejected an increased offer from 888 Holdings Plc and Rank Group Plc. The bidders were down 2.2 percent and up 2.8 percent, respectively.
The MSCI Asia Pacific Index fell less than 0.1 percent, after rallying 3.1 percent last week. Markets in South Korea and India were shut Monday for holidays.
The Topix index lost 0.5 percent as Japan posted an annualized expansion for the second quarter of 0.2 percent, below the 0.7 percent projected by economists. Officials in Asia’s second-largest economy are struggling to ignite price growth, with the central bank running negative interest rates and an unprecedented asset-purchase program, and the government also bolstering fiscal stimulus.
Hong Kong’s Hang Seng Index climbed 0.8 percent to a nine-month high after government data showed the economy expanded in the second quarter at the fastest pace since 2001. The Shanghai Composite Index advanced 2.4 percent to its highest since January after stake purchases by China Evergrande Group spurred takeover bets among property developers. The Shenzhen Composite Index climbed by the most since June after the Hong Kong Economic Journal reported that a proposed exchange link with Hong Kong will be announced as soon as this week and start in December.
“The road ahead may be bumpy but Asian equities ex-Japan are relatively undervalued, under-owned and under-appreciated,” said Vasu Menon, vice president for wealth management research at Oversea-Chinese Banking Corp. in Singapore. “It could do better than other regions over the next few years once we see greater stability in China and greater clarity with Fed policy.”
Futures on the S&P 500 Index added 0.2 percent, after the U.S. benchmark slipped 0.1 percent in the last session.
The Bloomberg Dollar Spot Index, a gauge of the greenback’s strength, retreated 0.2 percent to levels last seen in June. The yen advanced 0.2 percent, reversing an earlier loss. Russia’s ruble climbed 1.1 percent, leading gains among the currencies of oil-exporting nations.
The yuan weakened 0.14 percent to 6.6425 per dollar in Shanghai, after gaining 0.4 percent over the last four trading days. China’s broadest measure of new credit increased in July by the least in two years, a report showed late Friday. Data earlier that day showed factory output, retail sales and fixed-asset investment all slowed in Asia’s biggest economy.
Thailand’s baht reversed earlier losses to trade 0.5 percent stronger after the government reported better-than-expected economic growth. Gross domestic product expanded 3.5 percent in the three months through June from a year earlier, more than the 3.3 percent increase forecast in a Bloomberg survey.
West Texas Intermediate crude climbed as much as 1.2 percent to $45.02 a barrel. It jumped 6.4 percent last week, its best performance since April, as Saudi Arabia signaled that it’s prepared to discuss stabilizing markets at informal discussions being held by the Organization of Petroleum Exporting Countries in September. Venezuela’s oil and foreign ministers will visit producer countries to lobby for price increases ahead of the talks, President Nicolas Maduro said.
Gold rose for the first time in three days, gaining 0.4 percent. The reduced likelihood of a Fed rate hike is a positive for precious metals as they don’t pay interest.
The yield on U.S. Treasuries due in a decade fell one basis point to 1.50 percent, after dropping by five basis points on Friday. The rate on similar-maturity Chinese debt dropped was steady at 2.66 percent, the lowest in ChinaBond data going back to 2006.