Equities remain rather sensitive to commodity prices – understandably, given their links to economic growth sentiment. In the oil space we continue to hear mumblings of meetings to discuss production freezes (Moscow next?), yet the probability of any agreement between Opec and Russia is non-existent as long as Opec’s own members fail to agree – Iran and Iraq are still increasing production. Can members trust each other anymore? Has the oil price decline on Saudi-led stubbornness taken things too far in some cases? Is the cartel no more? US production has fallen to a six-month low, helping prices recover to their best levels in many weeks, yet as we have written before, this just risks the US shale frackers rolling back in to make the most of more economically viable prices. They are the new swing producers.
While this remains a distinct possibility, we can’t fail to note some interesting technicals of late that are at odds with some of the fundamentals. US Crude has broken above $36 which could see it on for a double-bottom pattern completing around $45. A price in the mid-$40s makes sense after comments from some US producers about $40 being the new $70, and a $45 figure being cited as enough to encourage some of the nimble drillers back to their rigs. Yet US stockpiles continue to grow to fresh all-time highs. Will today’s data show yet another increase?
Brent Crude, on the other hand, never tested its $28 lows twice and so a double-bottom can’t be on the cards. While there is interesting resistance at $41.30, there is still potential for an inverted head and shoulders reversal to complete at $48 after the breakout at $36. Importantly, if both patterns achieved their objectives this would put paid to major long-term downtrends, getting prices back above what has been bugbear falling resistance since those long gone $100+ highs of summer 2014. It was also maintain the current $3 spread between the two benchmarks.
A major broker may have announced to the world yesterday that the recent surge in commodity prices has gone too far with fundamentals unchanged, exacerbated by short covering, ETF buying and banks vying to distance themselves from bad sector debts. That call may have resulted in a sell-off yesterday. However, markets have already regained poise. After all, fundamentals are one thing, but sentiment is very much another. And hopes of a more favourable message from central banks over the next week or supportive chat from major oil producing nations could easily serve to boost bullishness for the barrel again.
This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.