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Brent Crude Jumps to $80 a Barrel Amid Geopolitical Fears

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Fears over supply disruptions in the Middle East drove crude prices higher on Thursday, with Brent futures reaching their best levels since November 2014.

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Oil Prices Trek Higher

Global energy markets traded sharply higher on Thursday, with Brent crude topping $80 a barrel for the first time in three-and-a-half years. The international futures benchmark, which trades on London’s ICE Futures Exchange, reached a high of $80.33 a barrel for its July contract. That represents a gain of 1.3% from the previous close.

U.S. West Texas Intermediate (WTI) futures also gained and reached a peak of $70.30 a barrel on the New York Mercantile Exchange. Prices were up roughly 0.8% from the previous day.

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Oil prices have gained between 8% and 12% over the past month. As a result, energy stocks have surged more than 8% over the same period, far outpacing the broader equity markets in terms of gains.

Energy companies have also been responsible for the bulk of Wall Street’s earnings growth for the most recent quarter. According to FactSet, a financial research firm, energy, materials and technology were the biggest contributors to Q1 earnings and revenue growth.

Geopolitics Sway Commodities

Investors are becoming convinced that President Trump’s exit from the Iran nuclear accord will disrupt oil exports from the Persian Gulf. America’s exit from the agreement restores wide-ranging sanctions on the Islamic Republic, including limits on how much crude it can ship beyond its borders. Combined with record compliance from OPEC and its allies on limiting crude supplies, oil prices look poised to continue higher.

However, not everyone is convinced that sanctioning Iran will prop up crude prices long-term, largely because China and Europe still support the nuclear accord. Some analysts believe that Iran sanctions will wipe 1 million crude barrels per day from the global market. Others say the impact will limited to fewer than 500,000 barrels per day.

Iran is a member of the Saudi-led Organization of the Petroleum Exporting Countries (OPEC), but has expressed diverging views about how oil should be priced. The Iranians are comfortable with $65 a barrel oil while Saudi Arabia is targeting a price point of $80 and beyond.

By reapplying sanctions on Iran, the Trump administration has cost companies like Boeing and Airbus tens of billions of dollars in contracts. France’s Total announced Wednesday it may scrap a multi-billion-dollar gas project in Iran if it could not circumnavigate U.S. sanctions.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Analysis

Technical Update: Gold Breaks Trading Channel’s Support

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Gold has been oscillating in a tight, 70-dollar range since January 2018, finding support at $1,300 and stalling at $1,370 (Figure 1).

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Figure 1. Gold Daily Chart

While the commodity approached its 2016 high several times, the upper boundaries of the range served as resistance on each occasion (upper purple and bright blue trendlines in Figure 2, GLD shown).

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Figure 2. GLD Daily Chart

Technical Developments

  • Yesterday (May 15), the commodity declined, breaking below two major supports:
  1. Its 200 SMA (white line in Figure 2).
  2. The lower boundary of the 4-month horizontal trading range (lower bright blue horizontal trendline).
  • Today, the commodity oscillated in the lower portion of yesterday’s trading range, increasing the odds that the breakdown was not “false”.

Implications

  • Breaking below the lower boundary of the trading channel generated a sell signal with a downward target of $1230 (i.e. $70 projected from the point of breakout). Given gold’s prior minor low before entering the trading range ($1,240), and the lack of any major support levels in the $1,230 – $1,300 range, the projection from the trading range could be met quite swiftly.
  • If gold moves back within the trading channel and above its 200 SMA, the bearish implications from the breakdown will be negated and any short positions should be closed.
  • While the lower boundary of the trading range is at $1,300, breaking above the 200 SMA (currently at $1,307) would be required before any long positions are initiated. This is advisable even if the goal is to go long as soon as the commodity goes back within the channel. The 200 SMA served as a support on five occasions over the last 12 sessions (see Figure 1), before finally giving in on Tuesday, so it is expected to serve as a resistance if it were to be retested from below.

Outlook

  • Short-term bearish as long as the commodity remains below its 200 SMA
  • Neutral with a bullish bias if gold moves back above its 200 SMA.
  • Short- and long-term bullish above $1,380, as a break above 2016’s high will activate the previously discussed longer-term upward targets.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.8 stars on average, based on 12 rated postsPublished author of technical research. In his work on price “gaps”, published in the 2018 International Federation of Technical Analysts’ Annual Journal, he developed a new technical tool for analyzing and trading the “gap” phenomenon – the “K-Divergence” (http://ifta.org/public/files/journal/d_ifta_journal_18). Besides obtaining a Master in Financial Technical Analysis, he has completed a BBA and an MBA from the Schulich School of Business in Toronto and has completed all exams for the CFA, CMT and CFTe designations. Currently, providing research to investment management and financial advisory firms. http://www.linkedin.com/in/konstantindimov




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Commodities

Iran Divides OPEC Once Again, Calls for $65 a Barrel Crude

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The Islamic Republic of Iran has notified fellow OPEC members that it does not support the relentless rise in crude prices, signaling a sharp split with regional foe Saudi Arabia, whose effort to re-balance the market has driven international crude past $75 a barrel.

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“Suitable Price” for Crude

Iran believes that $60 to $65 a barrel constitutes a “suitable price” for oil, according to The Wall Street Journal, which cited an interview with the country’s deputy oil minister on Sunday. Oil Minister Bijan Namdar Zanganeh also stated that his country supports “reasonable” crude values and is not an advocate of ever-increasing price points.

Faced with the possibility of new U.S. sanctions, Iran could lose out on market share if the West decides to limit how much crude it can export beyond its borders. The country is home to the world’s largest proven reserves of natural gas.

“We strongly believe the oil market should not be political,” Zanganeh said, as quoted by WSJ. “Political interference will disrupt the process of development and exchange in the market.”

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Iran’s outlook on crude contrasts sharply with the Saudi-led Organization of the Petroleum Exporting Countries (OPEC), which is targeting prices closer to $80 a barrel. Saudi Arabia and Russia have agreed to extend their production cuts until the end of 2018 in an effort to re-balance the global market. Both nations, as well as other OPEC members, have achieved record compliance in light of the agreement.

In April, the cartel and its allies reduced output by 70,000 barrels per day, bringing their collective production levels to 32.12 million barrels. The decline was largely attributed to Venezuela, whose production continues to deteriorate as the country copes with severe supply disruptions. Last month, Venezuela offered India a 30% discount on crude shipments if it pays with the petro, a cryptocurrency backed by the Venezuelan government.

Crude Trades at Multi-Year High

Oil prices rose on Friday amid speculation that the Trump administration would re-impose sanctions on Iran. Brent crude, the international futures contract, closed at $74.87 a barrel on London’s ICE exchange. The contract was last seen trading at $74.95 a barrel, having gained more than 51% over year ago levels.

The West Texas Intermediate (WTI) benchmark for U.S. crude futures ended at $69.72 a barrel Friday, its highest in over three years. It was last seen hovering around $69.79 a barrel.

The relentless rise in crude prices has encouraged the resumption of the U.S. shale boom, which threatens to disrupt the global supply/demand balance. Analysts at J.P. Morgan Chase believe oil prices will gravitate back down to $50 a barrel as U.S. output continues to ramp up.

As Hacked reported in March, at least six U.S. oil producers have reduced their break-even points over the past three years, with the likes of Exxon, Shell, Conoco Phillips, EOG, Chevron, Pioneer and Continental able to maintain market share with prices at or below $40 a barrel.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Analysis

Gold Technical Analysis: Bullion Back Down to Trading Channel’s Lower Boundary

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Back on April 14, gold was on the verge of a major signal, trading as little as $10 away from the so-important $1380 mark. Let’s recap. Since 2013, the commodity has been forming a large inverse H&S pattern (bottoms – yellow ellipses; neckline – yellow trendline in Figure 1; note GLD shown). More recently, in 2018, gold has been trading in a horizontal trading range (bright blue horizontal trendlines).

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Figure 1. GLD Weekly Chart

Recent Technical Developments

  • Earlier in March, the commodity completed a “mini” inverse H&S pattern (bottoms – white ellipses; neckline – white trendline; break above neckline – white arrow in Figure 2).
  • However, instead of breaking above the upper boundaries of the trading channel, gold formed an identical reversal pattern – this time pointing to lower prices (tops – orange ellipses; neckline – orange trendline). On April 20, gold broke below the neckline (orange arrow) and swiftly moved lower over the next few sessions. Given the size of both patterns, their targets were quickly met after each breakout.
  • On Tuesday and Wednesday (May 1 & 2), gold retested both the lower boundaries of the trading channel, as well its 200 SMA (yellow line), before moving higher over the next two trading sessions.

Figure 2. GLD Daily Chart

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Implications

  • A break below the lower boundary of the trading channel will result in a short-term sell signal. Given the confluence of support levels (lower boundary of the channel and 200 SMA), a potential break below would have even greater bearish implications.
  • As gold has been oscillating within the $1,300 – $1,370 range for over 4 months, the break in either direction is expected to result in a swift move in the direction of the breakout (Figure 3; commodity shown). More specifically, if gold breaks below $1300, a $1,230 downside target is obtained. To the upside, a break above $1,370 will result in a minimum $1,440 target.

Figure 3. Gold Daily Chart

Outlook

  • Neutral within the $1,300 – $1,380 range (using 2016’s high as a trigger and not the high of the trading range).
  • Short-term bearish below $1,300.
  • Short- and long-term bullish above $1,380, as a break above 2016’s high will activate the previously discussed longer-term upward targets.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.8 stars on average, based on 12 rated postsPublished author of technical research. In his work on price “gaps”, published in the 2018 International Federation of Technical Analysts’ Annual Journal, he developed a new technical tool for analyzing and trading the “gap” phenomenon – the “K-Divergence” (http://ifta.org/public/files/journal/d_ifta_journal_18). Besides obtaining a Master in Financial Technical Analysis, he has completed a BBA and an MBA from the Schulich School of Business in Toronto and has completed all exams for the CFA, CMT and CFTe designations. Currently, providing research to investment management and financial advisory firms. http://www.linkedin.com/in/konstantindimov




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