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Crude Oil Drops Again as Markets Sour on OPEC Output Cut Deal

Crude Oil Drops Again as Markets Sour on OPEC Output Cut Deal

2017-01-11 04:41:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Crude oil prices post largest 2-day drop since late October
  • OPEC output cut narrative may be losing its market appeal
  • Gold prices rise amid continued “Trump trade” unwinding

Crude oil prices continued to fall. Performance so far this week has amounted to the steepest two-day decline since late October. Interestingly, the decline doesn’t seem to have followed from API weekly inventory data showing stockpiles added 1.53 million barrels last week. By the time this news came out, the WTI benchmark had settled into a choppy consolidation range after a long day of selling.

As noted yesterday, the OPEC output reduction scheme cobbled together late last year may be losing its ability to impress investors as they consider the degree to which higher prices will lure swing producers back into the market. As if on cue, the EIA upgraded its 2017 US crude output forecast yesterday to 9m b/d from 8.78m projected in December.

Concerns about output cut compliance in Iraq – OPEC’s second-largest producer – are hardly helping matters. Shipping data shows exports are set to increase in February (according to Bloomberg) all while the country’s oil minister says production is being scaled back. The official set of EIA inventory figures is in focus ahead, with an increase of 930k barrels expected by economists.

Gold prices rose for a second consecutive day as Fed rate hike bets continued to moderate, mirroring yesterday’s dynamics. Investors’ commitment to scaling back exposure to the so-called “Trump trade” will be tested as comments from New York Fed President Bill Dudley cross the wires. Corrective flows have proven resilient to even somewhat hawkish rhetoric so far this week however.

What do traders’ buy/sell decisions say about gold and crude oil price trends? Find out here!

GOLD TECHNICAL ANALYSISGold prices continued to rise, hitting the highest level in six weeks. Near-term resistance remains in the 1193.55-99.80 area (38.2% Fibonacci retracement, May 30 low), with a daily close above that exposing the 50% level at 1215.40. Alternatively, a turn back below the 23.6% Fib at 1166.51 targets the 14.6% retracement at 1149.85.

Crude Oil Drops Again as Markets Sour on OPEC Output Cut Deal

CRUDE OIL TECHNICAL ANALYSISCrude oil prices fell for a second consecutive day. Support is now at 50.25, the 38.2% Fibonacci retracement. A break below this barrier confirmed on a daily closing basis exposes the 50% level at 48.72. Alternatively, a reversal back above the 23.6% Fib at 52.15 targets the January 3 highat 55.21.

Crude Oil Drops Again as Markets Sour on OPEC Output Cut Deal

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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