MARKET BRIEFING – LONDON OPEN 22.12.2015
Yesterday, the price per barrel of Light Sweet Crude continued to drop to new lows. The price of crude has collapsed due to considerable downward pressure being exerted by Saudi Arabia and other OPEC nations.
The downturn in the global economy which has seen both China and the European Union experience contractions has led to the demand of Oil decrease.
The Saudi’s are concerned that production from non-OPEC nations eats away at its market share. Saudi Arabia has two main targets in its sights. The new upstarts being the United States shale producers and the other be oil pumped from the vast Russian fields.
The production of Oil from US shale fields has pumped at a much higher cost than that from crude that is extracted by the Saudi’s. Therefore, Saudi Arabia has effectively used oversupply as a policy tool to curtail the production of shale oil by producers who in many cases have to service high debt burdens.
In the case of targeting Russian production, the benefit for Saudi is twofold. Not only can the Saudi’s draw market share away from Russian producers, but it can also be used as a financial penalty limiting Russia’s involvement in Syria.
Using Oil as a political tool is not something that is new. We had a glimpse of what can be achieved during the Oil crisis of the early 1970’s when OPEC cut off supply to the West in protest against unaligned policy interests.
It would appear that the price of Oil will continue to decline due to reasons outside the control of the Saudi’s.
Iran having come to an accommodation over its nuclear programme is now free to ramp up production. Furthermore, production from Russian fields continues to increase. Finally, the United States has now ended a 40-year ban on the export of Oil.
With the demand of oil not increasing, the only limiting factor to production being ramped up is where will all this excess supply of crude be stored? Refineries are limited to how much crude can be processed and land-based storage is already at full capacity. Therefore, there is a need to begin storing oil offshore within tankers.
With so much pessimism over the downward direction of the price of Oil, one would most probably contemplate levels of US$30, US$25 or even US$20 per barrel. However, moods can sometimes change very quickly.
Searching for clues for when Oil will eventual begin to form a base is not an easy task.
I am however looking at two areas of interest.
EURUSD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.1040
Target 2: 1.0790
Projected range in ATR’s: 0.0128
Daily control level: 1.0845
GBPUSD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.4995
Target 2: 1.4675
Projected range in ATR’s: 0.0115
Daily control level: 1.4930
USDJPY
The intraday technical outlook
Trend 1 hour: Down
Target 1: 123.30
Target 2: 120.10
Projected range in ATR’s: 1.06
Daily control level: 121.50
USDCHF
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.0035
Target 2: 0.9810
Projected range in ATR’s: 0.0113
Daily control level: 0.9895
USDCAD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.4075
Target 2: 1.3840
Projected range in ATR’s: 0.0118
Daily control level: 1.3850
AUDUSD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 0.7280
Target 2: 0.7090
Projected range in ATR’s: 0.0094
Daily control level: 0.7110
GOLD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1094.00
Target 2: 1062.00
Projected range in ATR’s: 16.21
Daily control level: 1066.75
OIL
The intraday technical outlook
Trend 1 hour: Down
Target 1: 37.60
Target 2: 34.30
Projected range in ATR’s: 1.59
Daily control level: 37.15