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OPEC are the oil masters again

There’s a certain push for Australian oilers including BHP today with a chain of announcements signalling Saudi Arabia is trying to lift oil prices above $60 a barrel, and perhaps closer to $70 a barrel.

Oil
Source: Bloomberg

Saudi Arabia is also preparing a partial flotation of its crown jewel, state-owned oil company Saudi Aramco, in 2018. Higher oil prices would make this significantly more attractive for investors.

The downside is this move towards higher prices may not work, as it flies in the face of the resurgence of US shale drilling from Texas to North Dakota. This means volatility in the coming months will be news dependant. The agreement between OPEC and non-OPEC countries is the first in 15 years with a potential cut of 300,000 barrels a day, showing a massive statement of intent to the market that they want to rebalance the oversupply. This all adds to the reflation trade happening in global equity markets.

The US dollar index remains above the key levels at 101.59 and is still applying pressure to the USD/JPY now in a technical breakout above significant resistance of 114.80. The Nikkei, last at 19218, will be testing the November 2015 highs of 20,000 points on the back of any continued USD/JPY moves. 62% of stocks in the S&P 500 made a 52-week high last week, and 83% of stocks remain above their 20-day moving average, which shows a high participation amongst traders and managers.

In politics, Trump may name his Secretary of State as Rex Tillerson, but there is pushback from both side because of his connections with Russia as Exxon mobile CEO.

Chinese builders are facing headwinds as the government raises limits on bond selling, which is where 40% of capital is raised. With over $17 billion due in the coming months, not a single bond has been sold since the clampdown.

With our Aussie 200 tentatively pushing back in the 5600 point level, a lift in base commodities continues alongside a further lift in banking yield stocks, which is now starting to include the insurance companies AMP and QBE on the expectation of higher bond yields in the US and Australia. The Australian market has rallied 320 points or 6% since Trump’s election win.

It is expected that the market will open 23 points higher at 5583, however with the weekend’s events, strong gains are expected in BHP, WPL and STO with the potential to lift the index to 5600 points.

A great way to start the week leading into a potential seasonal Christmas rally is expected in the second or third week of December. The BHP ADR is matching down 16 cents at $25.82. With the events in the oil market this is expected to be an overall huge positive for the stock. BHP, with key technical support, is now showing at $26 with Woodside technical price support at $30. CBA’s ADR is down 17 cents from Friday’s close.

Watch for the AUD/USD to test 75 cents where technical selling may enter the market.

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