How Will Oil Traders Respond To The $50 Price Level
It is the highest
crude price for seven months, but, according to Commerzbank, oil at this
level makes shale oil production lucrative again in many places, which could
dampen
the fall in production in the coming months.
The oil
market has seen major supply disruptions recently. An uncontrollable
wildfire in northern Alberta has reduced Canada’s oil production by more than 1
million barrels per
day for the last two weeks. Nigeria has also seen is crude
production fall by 800,000 barrels per day as a result of terrorist attacks on
the nation’s pipelines.
Many market players believe the increased oil prices could lead
producers, especially among shale companies in the US, to revive operations
that were closed in recent years.
CMC Markets chief market analyst Ric Spooner told the news agency:
"Certainly ($50) is a
psychological barrier. There is a momentum, people will try and push it
up over that."
A Streets Report said:
Don't get too excited about
oil's $50 milestone Thursday. While both Brent and West Texas
Intermediate crossed $50 a barrel, next week's OPEC meeting could break the rally.
"Iran is
determined to ramp up productions to its pre-sanction levels," says
Jasper Lawler, a markets strategist with CMC Markets, adding that Saudi Arabia won't agree to a
production
freeze unless Iran
participates.
"I think
we can expect [no production freeze] from this meeting and the result
from the past three meetings has been a big dive in oil prices."
During OPEC's previous meeting back on April 17, no production
deal was reached amid tensions between Iran and Saudi Arabia. Iran officials
didn't attend April's meeting.
Lawler says if prices don't nosedive following the June 2 OPEC meeting, that
would represent a turning point for the closely watched commodity.
West Texas Intermediate is up 21% since the start of the year.
A meeting of OPEC countries on June 2 in Vienna to discuss the oil
market added further support. However, the recent rise in oil prices and
friction between key members
Saudi Arabia and Iran mean a coordinated effort to intervene to
support prices is slim.
“A (production) freeze remains a tail risk, but a very small one.
The bigger risk is that following the meeting, Saudi will increase production to meet rising summer
domestic demand,
to preserve market share in its oil wars with Iran and Iraq,”
David Hufton, head of PVM Oil brokers, was quoted as saying.
“These are all compelling reasons to expect Saudi production to
rise over the summer months.”
GOLD
Fed has been promising to
raise interest rate year-to-date, but has not done it any single time. The Fed
is in a very difficult position. Rising interest rate might cause immediate recession
due to lack of liquidity. On the other hand, as they
promised to raise interest rates, they must sooner or later fulfill the promise.
Otherwise, market will
continue to lose confidence in the Fed.
But if they lift rate now
and recession starts immediately, they will be forced to put rate down again. This might damage Fed's
credibility even more.
Physical gold flows continue to be diverted to London, with demand
in the world's number one
and two physical consumers, China and India respectively, reported very
weak, a theme
throughout 2016 so far, sources said this week
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