OIL DIPS AHEAD OF U.S INVENTORIES DATA – SUPPORT FROM IRAQ FAILS TO CHEER UP SENTIMENT
Crude prices nudged lower in the European trading session on Wednesday. The burden stemming from a strong U.S dollar and a rise in U.S oil inventories that was reported yesterday continued to pin crude prices around two-week lows. Meanwhile, a statement from Iraq’s PM that his country is supportive of an output cap and a production outage in the Gulf of Mexico due to storms have not been able to provide support to prices.
Data from the American Petroleum Institute on Tuesday reported that U.S. crude stocks rose by 942,000 barrels to 525.2 million barrels in the week to Aug. 26, topping analysts’ expectations for an increase of 921,000 barrels. Concerns over a production glut in the U.S persist as higher crude prices are widely believed to appeal to high-cost shale oil producers and induce them to come back into the market.
Cautiousness can be felt in the market in the trading thus far, as official U.S. oil inventories data published by the Energy Information Administration, is due for release later today, and is expected to report an increase of 1.1 million barrels in stocks as of last week.
On Tuesday, Iraq’s Prime Minister Haider al-Abadi sent a contradictory signal to what he had indicated last week, when he stated that the OPEC’s second-largest petroleum producer is still not producing as much oil as it should be. Mr. Abadi’s latest comment that “We support freezing oil production by OPEC due to the sharp decline in oil prices” may confuse the market with regards to Iraq’s actual strategy. The country’s new oil minister Jabar Ali al-Luaibi has been calling on companies to increase exports to generate more national revenue, and the prime minister now seems to be contradicting his and the oil minister’s earlier statements.
Iraq is pumping 4.6 million barrels per day and is desperately in need of oil revenue to support its war against the Islamic State. With 95% of budget coming from oil, Iraq will need to choose between price and quantity when it comes to the mandate of maintaining government income. The market is still not clear about the outcome of the informal meeting next month between OPEC and non-OPEC oil producers.
Crude prices seem to be bottoming out around 23.6% retracement level at $45.56 per barrel after falling back to test the 20 day moving average. It is not clear if the current slide is just a correction or a reversal into a downtrend as the RSI remains in bullish territory even though it is pointing downwards. Traders may need to wait for further signals before aggressively buying puts or calls. For intraday trading, the markets seem cautious and not willing to go long. Therefore put options are suggested.
Trade suggestion
Buy Digital Put Option from 46.00 to 45.60 valid until 20:00 GMT August 31, 2016
Crude prices nudged lower in the European trading session on Wednesday. The burden stemming from a strong U.S dollar and a rise in U.S oil inventories that was reported yesterday continued to pin crude prices around two-week lows. Meanwhile, a statement from Iraq’s PM that his country is supportive of an output cap and a production outage in the Gulf of Mexico due to storms have not been able to provide support to prices.
Data from the American Petroleum Institute on Tuesday reported that U.S. crude stocks rose by 942,000 barrels to 525.2 million barrels in the week to Aug. 26, topping analysts’ expectations for an increase of 921,000 barrels. Concerns over a production glut in the U.S persist as higher crude prices are widely believed to appeal to high-cost shale oil producers and induce them to come back into the market.
Cautiousness can be felt in the market in the trading thus far, as official U.S. oil inventories data published by the Energy Information Administration, is due for release later today, and is expected to report an increase of 1.1 million barrels in stocks as of last week.
On Tuesday, Iraq’s Prime Minister Haider al-Abadi sent a contradictory signal to what he had indicated last week, when he stated that the OPEC’s second-largest petroleum producer is still not producing as much oil as it should be. Mr. Abadi’s latest comment that “We support freezing oil production by OPEC due to the sharp decline in oil prices” may confuse the market with regards to Iraq’s actual strategy. The country’s new oil minister Jabar Ali al-Luaibi has been calling on companies to increase exports to generate more national revenue, and the prime minister now seems to be contradicting his and the oil minister’s earlier statements.
Iraq is pumping 4.6 million barrels per day and is desperately in need of oil revenue to support its war against the Islamic State. With 95% of budget coming from oil, Iraq will need to choose between price and quantity when it comes to the mandate of maintaining government income. The market is still not clear about the outcome of the informal meeting next month between OPEC and non-OPEC oil producers.
Crude prices seem to be bottoming out around 23.6% retracement level at $45.56 per barrel after falling back to test the 20 day moving average. It is not clear if the current slide is just a correction or a reversal into a downtrend as the RSI remains in bullish territory even though it is pointing downwards. Traders may need to wait for further signals before aggressively buying puts or calls. For intraday trading, the markets seem cautious and not willing to go long. Therefore put options are suggested.
Trade suggestion
Buy Digital Put Option from 46.00 to 45.60 valid until 20:00 GMT August 31, 2016
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