Fundamental and Technical Analysis
Major events over the next 2 weeks include the OPEC meeting (4 Dec) and FOMC meeting (16 Dec): Apart from the weekly crude oil release, we expect to see prices move on these 2 major events. OPEC meeting traditionally has played a role in moving prices. Although we continue to find it unlikely that OPEC would be changing their stance, there seem to be a growing possibility as they have changed their tone. Saudi Arabia, one of the more prominent members, has openly inched towards the idea of cooperation, more than before. This means that if they manage to get more major producers on board, a cut to the crude oil production may happen. We expect the days prior to the OPEC meeting to give a better feel of this whole issue thus, prices should be jumpy on days before the meeting.
After the OPEC meeting, we would be expecting the FOMC meeting to move markets. In terms of oil prices, the FOMC meeting would affect prices based on the US Dollar Index. Oil prices and the USD strength has an inverse relationship and if we are seeing the US Dollar Index moving past 100 to reach a new high, we expect oil prices to face downward pressures. With the US Dollar Index moving towards 100, it would seem that the market is truly anticipating a rate hike. We believe the most prominent data would be Nonfarm payrolls, scheduled to release on 4 Dec would cause huge volatility to the USD. This should in turn cause some volatility to oil prices depending on how the USD strength plays out.
Risk from Iranian oil flowing back into the market: Although the news from Iran has gone relatively quiet, we remain wary of what the return of Iranian oil could do for the market. Adding more supply to the already oversupplied markets would likely cause prices to plunge again and we remain wary of it. This was initially scheduled for Nov’15, however, with the situation going quiet, we believe that the risk still remains that Iranian supply could return which would likely cause prices to plunge again.
With the upcoming events, we expect volatility to prices even as we approach the end of the year. We may expect some bearishness from possible increases to the USD strength, however, would think that fundamentals will play the bigger role. Provided supply does not change in the last quarter of the year, we highly anticipate the continued range bound movement for oil prices. The only event where we see oil prices moving higher is if we could confirm that Iranian oil would not flood back into the market and OPEC decides to cut production. As the occurrence of both event is rather unlikely, we continue to believe that prices should stay low and will unlikely move higher by the end of the year. (Read Report)
Source : Phillip Futures Pte Ltd