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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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.