Can Weak Dollar and OPEC Deal Beat the Fear of Coming-back U.S. Crude?
Crude prices extended their gains on Monday on the back of a weakening U.S. dollar and anticipation that oil supplies will be tighter next year following the output-cut deal between OPEC and non-OPEC members.
February Brent crude advanced 0.71% to $55.63 per barrel on London’s ICE Futures exchange as market focus shifts back to the recent commitments from world’s top oil producers to trim their production. Almost 1.8 million barrels per day in global supply will be curbed from January 2017. Of that, the OPEC led by Arab Saudi pledged to cut production by 1.2 million barrels per day starting next month while other producers led by Russia committed to a cutback of 558,000 barrels per day.
On the other hand, the U.S. dollar continued to slide from its 14-year high recorded last Thursday. The dollar index, which gauges the relative strength of the greenback versus a basket of other leading currencies, has dropped 0.9% so far on the day. A retreat in the dollar is favorable for oil demand as crude prices tend to become more affordable for any country using its own currency domestically.
However, while major oil producers are making efforts to deplete the global supply glut by sticking to their agreement to cut production next year, U.S. producers, who did not join the production cut deal, are coming back to the market to take advantage of higher oil price. According to energy services firm Baker Hughes, drillers in the U.S. added 12 oil rigs in the week to Dec. 16, bringing the total to 510, the highest since January. The country’s production was also reported to edge higher, soaring from below 8.5 million bpd in July to almost 8.8 million bpd by mid-December.
Fig: BRENT D1 Technical Chart
Brent crude has been on a rise for three consecutive trading days after falling from the high at 57.23. As can be observed from the chart, crude price has been trading in an upwards trading range which has been formed from higher highs and higher lows. Oil price attempted to make a breakout of this range last Monday but failed to sustain its up moves. With RSI is heading upwards, the price action is expected to test the upper boundary but the upside seems limited.
Buy Stop at 55.60, Take profit at 56.50, Stop loss at 55.20