US AM Digest: Oil Rises as OPEC Signal Output Hike at Lower End of Expectations

US Market Snapshot via IG: DJIA -0.8%, Nasdaq 100 -0.8%, S&P 500 -0.7%

Major Headlines

  • OPEC is said to discuss an output hike of 300-600k bpd – sources
  • China announced retaliatory tariffs on the US worth $50bln and considers tariffs on oil

Crude oil: Initial spike higher in Brent crude after OPEC source reports noted that OPEC is considering boosting production by around 300k-600k bpd, which is a lot less than the previously touted 1-1.5mln bpd. Additionally, given that the market has roughly priced in around 500-700k bpd increase, this has been perceived as relatively good news. Headline risk remains high in the run up to OPEC’s meeting on Friday.

USD: Subdued trading in the greenback, which has pulled back from the 95.00 handle as major pairs begin to stabilise. Tit-for-tat trade spat continues to escalate between the US and China with the latter announcing retaliatory tariffs on the US, while they are also considering tariffs on oil. Latest CFTC data highlighted that speculators have increased their bearish bets on the USD by $1.8bln, taking the total net short to $7bln.

GBP: Brexit uncertainty continues to pressure the Pound, which currently hover around intra-day lows of 1.3230 ahead of the expected defeat in the House of Lords. However, given the likely defeat in the House of Lords, greater focus will be on the vote in the Commons where a defeat would lead to further selling in GBP.

EUR: 1.16 has been reclaimed with as Merkel is given 2 weeks to find a workable immigration policy solution that will keep the hardliners CSU happy. As such, the lack of escalating German political uncertainty has allowed for EURUSD to stabilise.

DailyFX Economic Calendar: Monday, June 18, 2018 – North American Releases

DailyWebinar Calendar: Monday, June 18, 2018

IG Client Sentiment Index: US Oil Chart of the Day

Oil – US Crude: Data shows 66.5% of traders are net-long with the ratio of traders long to short at 1.99 to 1. In fact, traders have remained net-long since May 25 when Oil – US Crude traded near 7160.7; price has moved 10.3% lower since then. The number of traders net-long is 2.3% lower than yesterday and 0.9% lower from last week, while the number of traders net-short is 23.8% lower than yesterday and 10.8% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil – US Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil – US Crude-bearish contrarian trading bias.

Five Things Traders are Reading

  1. Euro Forecast: Euro Eyes Sintra ECB Forum for Next CuesbyChristopher Vecchio, CFA, Sr. Currency Strategist
  2. Bitcoin & Litecoin Technical Outlook Continues to Point to Lower Prices” by Paul Robinson, Market Analyst
  3. UK Market Webinar: BoE’s Carney Speech, Brexit Schismsby Nick Cawley, Market Analyst
  4. EURNOK Downtrend Intact Amid Norges Bank Rate Decisionby Justin McQueen, Market Analyst
  5. CoT: Record Change in Silver Positioning Highlights Growing Instability” by Paul Robinson, Market Analyst

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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