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Oil Prices Post Biggest Drop in a Year as Russia, OPEC Weigh Abandoning Output Deal

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Oil prices sold off Friday at their fastest pace in a year after major energy producers said they may soon begin lowering production limits.

Energy Ministers Weigh Easing Output Caps

A group of two-dozen producer nations are considering a gradual exit from an output deal put in place last year to rebalance an oversupplied crude market. Under the deal, Russia, OPEC and others agreed to reduce crude supplies by 1.8 million barrels per day.

Russia was especially vocal about lowering and eventually abandoning output quotas in support of a balanced market after Moscow’s energy minister met with his Saudi counterpart in St. Petersburg.

“The moment is coming when we should consider assessing ways to exit the deal very seriously and gradually ease quotas on output cuts,” Russian energy minister Alexander Novak said, according to Reuters.

Russian President Vladimir Putin also said Friday his country does not support runaway oil prices, a sign that the world’s largest energy producer was prepared to ramp up production soon.

“We’re not interested in an endless rise in the price of energy and oil,” Putin said in St. Petersburg on Friday. “I would say we’re perfectly happy with $60 a barrel. Whatever is above that can lead to certain problems for consumers, which also isn’t good for producers.”

The Russian leader echoed previous comments made by Iranian officials, who indicated that a range of $60 to $65 a barrel was fair market value for crude. The Saudis, meanwhile, were said to be targeting prices above $80 a barrel.

OPEC and its allies are planning to gather in their Vienna headquarters June 22 to discuss a new output deal. Output will most likely increase, though the details of the production rise remain unclear.

Oil Prices Sink

U.S. West Texas Intermediate (WTI) futures plunged 4.2% to $67.70 a barrel, the biggest fall since June 2017. The contract settled at worst level in over three weeks.

Brent crude fell 3.1% to $76.39 a barrel, its lowest since May 8. The international futures benchmark traded above $80 a barrel last week for the first time since 2014.

Energy shares were dragged along for the ride, as the sector fell 2.6%. Dow industrials Chevron Corp and Exxon Mobil Corp fell 3.5% and 1.9%, respectively.

Featured image courtesy of Shutterstock. 

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4.6 stars on average, based on 465 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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Commodities

Brent Crude Oil: $100 Per Barrel Is In Sight

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Crude oil has been moving steadily higher for months, despite a recent short-term blip, and it may not be long before we are looking at triple-digit prices once again. Eighty-dollar Brent is the most recent target, reflecting the highest level the commodity has seen in years and the closest its come to 2008 record highs of $150 per barrel.

And while market forces aka Saudi Arabia may be doing what they can to control the price, there is a wildcard that could send oil futures soaring to near $100 per barrel once again, and according to a market strategist on CNBC, it’s Venezuela.

Bob Parker of Quilvest Wealth Management said on the business network that Venezuela holds the key to unlocking near-$100 oil prices once again. If Venezuela, which is mired in economic depression, were to bring oil production to a total halt, it could serve as an impetus to send crude oil futures soaring to levels not witnessed in years.

A combination of production cuts inspired by OPEC and rising demand around the world has thrust the oil price to the $80 per barrel level in May, back to 2014 levels. Surplus worries have taken some steam out of the rally, at least in the short-term, as the US has been ramping up production. But Saudi Arabia has still been calling the global shots, and they like oil in the $70-$80 range.

The Wall Street Journal

Parker believes that the oil kingpins — Saudia Arabia, other OPEC nations and Russia — have reached their goal to “clear this industry from overhang from the oil market.” It’s been on again, off again for production cues, and if they had their way, oil prices would persist at current levels.

“I think what they are concerned about is that they ideally would like to avoid a spike in the oil price, let’s say towards $100 a barrel, because they are very sensitive to the fact that a spike would then lead to a generalized global downturn,” Parker told CNBC.

Venezuela Wildcard

Energy is the heart of the Venezuelan economy, and therefore it’s the industry that’s been hit the hardest. It’s been displaced by Colombia for oil exports to the U.S., and production has been falling sharply.

Latin American crude production has been slashed by some 40% in the past three years and is currently hovering at about 1.4 million barrels per day amid Venezuela’s hyperinflation and food crisis. If Venezuelan production were to come to a complete halt, and there’s no indication that the worst is over, it could thrust crude futures back to triple-digit- territory.

It’s not just one market strategist that predicts $100 per barrel oil. RBC’s Helima Croft similarly believes that a perfect storm could send Brent up to lofty levels, with the Venezuelan economic demise the deciding factor.

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 16 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.




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Commodities

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.

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.

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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4.6 stars on average, based on 465 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).

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).

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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4.5 stars on average, based on 15 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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