It’s hard to be anything but neutral on US crude until we see a break below $43.00, or at least above last week’s high of $46.61. This should define the trading bias in the market, and a closing break either side of these levels could see better conditions or some kind of trend.
Specifically, we can look at the strong support in US crude into $43.00 and make an argument that a close through here should see a fairly rapid move into $40 and below.
The US election
Fundamentally, one can look at the upcoming slew of presidential debates to see if there is an impact on risk appetite and the dollar. A dollar rally, presumably driven by Donald Trump performing admirably in the debate, will act as a headwind for crude. One suspects if Hillary Clinton is the better of the two performers, then we could see some modest upside for assets like oil.
Oil inventory data
I would also focus on the weekly Department of Energy (DoE) inventory data that will be released on Thursday. Last week we saw a huge drawdown down in both gasoline and crude inventories and that would be supporting oil above $43.00 a barrel. So a further drawdown could spur further support for oil, although a rapid build would naturally push prices lower. One for the radar.
The OPEC meeting
The third key aspect is the OPEC meeting on the sidelines of an energy forum in Algeria. The full details of the talks should be disclosed on Wednesday. Some market participants have got quite excited that we will hear of measures to stabilise the oil market. These measures could include a production freeze, with some even feeling there is an elevated chance of production cuts in some of the bigger oil producing nations such as Saudi Arabia.
There seems a very high chance we hear of constructive talks and certainly the organisation showing a more harmonious approach than at prior meetings, but I am sceptical of hearing anything tangible around cuts or even freezes. Not at this meeting anyhow.
We have already heard from OPEC’s Secretary General that this meeting will be a ‘meeting of consultation and not of decision making’. Iran is not likely to cut production just yet and Saudi Arabia will not come to the table until Iran at least caps production. Then we hear the Russian representatives are not even staying for the full duration. It has the hallmarks of a meeting that will push any of the more hard-hitting decisions to the official November OPEC meeting. It suggests oil could be volatile this week.
Price action is key this week with price aggregating all the moving parts. Personally, I would be using a break of $43.00 to $46.61 as a guide or inspiration for any short-term trading bias.