OPEC meets to discuss oil prices
Fundamental outlook
LAST week, the US Federal Reserve chairman Jerome Powell was criticised by President Donald Trump for favouring a rate hike policy that has caused prices to slump on the Dow market. Soon after Trump’s remark, Powell held a press talk and commented that the Fed fund rate is nearing a neutral benchmark and this had lifted stock markets.
Saudi Arabia signed a letter of offer and acceptance to purchase US$15 billion worth of THAAD missile system. Market analysts interpret this as a closure of Khashoggi’s murder case after President Trump commented earlier of his preference to maintain US’ business relationship with Saudi Arabia than to pursue the mastermind of the murder, which could be linked to Saudi Arabia’s royal family.
China reported an unexpected fall in its manufacturing index as the November reading was at 50, the first time since August 2016. The media is now focusing on the Trump-Xi talk during the coming G20 meeting this week, though most analysts do not expect a positive outcome from the trade negotiation.
The Organisation of Petroleum Exporting Countries ( OPEC) members and Russia will meet on December 6 in Vienna to discuss on the adjustment of oil prices for the international market. Saudi Arabia is committed to not induce another supply glut while most oil producing countries are favouring an oil recovery to increase their revenues. Despite that, US President Trump has openly reiterated many times to prefer low oil prices in order to contain inflation. Technical forecast US dollar/Japanese yen traded in narrow range last week from 113 to 114. This week, we forecast the selling pressure will emerge strongly on the topside region while the trend is proned to falter at 111. The dollar’s strength should be observed as a main lead to the yen on an inverse correlation.
Euro/US dollar stood at 1.1250 last week and recovered to 1.14. This week, we foresee the trend will be sideways, trading in mixed sentiments from 1.125 to 1.15. Breaking in either direction will lead to a new headway, depending on the dollar’s movement.
British pound/US dollar stayed within a tight range from 1.273 to 1.283 due to the uncertainties of the Brexit deal. Traders are watching closely on the progress of the negotiations between Prime Minister Theresa May and the European Commission on the terms of leaving the European Union bloc by April 2019. This week, we reckoned the trend will move cautiously from 1.27 to 1.29 due to the ongoing developments of the Brexit deal.
Gold prices have been trading from US$1,210 to US$1,230 per ounce amid mixed sentiments. There has been some strong bargain-hunting in the market but the firm dollar is still a crucial factor to weigh on the yellow metal. This week, we foresee the market will thread in the abovementioned range but with a likelihood of surging towards the weekend. If the market goes above the US$ 1,240/ oz benchmark, it could new strength to drive higher to US$1,270/oz.
WTI Crude prices have been consolidating from US$ 50 to US$52 per barrel. This week, the outcome of the OPEC meeting will be an important factor to lead the market trend out of the aforementioned narrow range. A short-covering is prone to occur and as such, our benchmark is at US$55/barrel if the US$52 /barrel resistance is broken. However, beware of an unexpected fall beneath the US$50/barrel level in case the meeting in Vienna on December 6 fails to hold oil prices.
Silver prices traded in a flat pattern for another week with low demand. We forecast that the trade of silver will range between US$14 to US$14.50/oz but there is also a likelihood of a rebound. We believe if the market trades above the US$14.50/oz resistance, it will lead to a new bullish trend in the near future. Based on the XAU/ XAG ratio chart, precious metals in gold and silver are bottoming out and will soon rise.
Futures crude palm oil (FCPO) on Bursa Derivatives ended higher on Friday after reports of the market’s expectations of lower palm oil output which has lifted the trend. On Friday, February contract closed at RM2,039/MT in the short- covering. This week, we foresee the market will continue to strive higher with support resting at RM2,000/MT region. Topside recovery could be at RM2,150/MT in case of breaking above the RM2,070/MT immediate resistance.
Dar Wong is a professional in the finance industry, based in Singapore with 29 years of global trading experiences. The expression is solely his own. You may reach him at dar@pwforex.com.