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April 13, 2016

Dollar rallies on upbeat news from China, Oil retreat from peaks as Al-Naimi says no to output cap

Dollar rallies on upbeat news from China, Oil retreat from peaks as Al-Naimi says no to output cap

Its only few days left before output talks are starting in Doha and traders are extremely concerned about the outcome of the meeting. The most likely scenario is a “soft freeze”, which does not imply any obligation on the part of the participating players, said Jeff Curry, strategist at Goldman Sachs, in an interview with Bloomberg TV. According to his words, “no one is interested” in serious steps to limit the supply that could reduce the glut on Oil market now.

Meanwhile, today at a conference in Lausanne, the heads of major energy market traders companies (Trafigura, Gunvor, Mercuria, Castleton, Glencore and Vitol) almost unanimously declared that the world oil market can return to balance by the end of 2016. Information on this matter appeared in Financial Times newspaper. The fall of oil prices occurred after the oil minister of Saudi Arabia, Ali al-Naimi has lowered the probability of freezing production on following meeting on Sunday.
According to Reuters, which cites the commentary of the local newspaper in Saudi Arabia, where oil minister Al-Naimi was asked about the reduction of production in the country, he said that should “forget about this”. The comments came a day after it became know that Russia and Saudi Arabia have reached a consensus to limit production on the eve of the meeting on Sunday. Analysts have warned that the planned meeting of major Oil producing nations will have only a limited impact on the capping of global overproduction. There has been strong volatility on Oil market recent days. Daily swings widened as much as $3/bbl per day.

Hedge funds are building up bullish wagers in anticipation of further recovery of oil prices after the forthcoming meeting in Doha. However, from a technical point of view, Brent has risen too sharply, so the short-term growth potential is exhausted. Today, the focus of the attention of traders are also Energy Information Administration data on stocks in US storage tanks, which will be released today.

EIA report released today showed U.S. commercial crude oil inventories rose 6.6 million barrels for the week ending April 8. At 536.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year.  Oil prices extended declines after the release. As at 10:37 ET on the WTI crude oil for May delivery was down 79 cents, or 1.87%, to trade at $ 41.44 a barrel. Brent crude fell 62 cents to $ 44.05.
Greenback reached a two-week peak against the euro on Wednesday on the strengthening of global stock markets and upbeat data from China which made risky bets attractive to investors compared with the low-yielding currencies in Europe and Japan.

US advanced Retails sales data missed expectations (-0.3% vs 0.1% projected), managed to bar the Dollar rally, but US currency continues to show a positive trend breaking 1.13 level, finding resistance at 1.1270. USD rose 0.64 percent against the yen to 109.23 yen from Monday’s low at 107.61 yen. Euro was as low as  $ 1.1272.

“It is obvious that under the best of moods and speculation (in respect of interest), the euro and the yen should weaken,” – said the chief investment officer Sun Global Investments Sanjeev Shah.

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