Financial market research and analysis

WTI and Brent initially bounced 5% in the run up to the OPEC meeting and just as quickly pared said gains as the Saudi Oil Minister said that they agreed to freeze the output at January levels. The most competitive oil producers are finally started showing the white flag but with a large inventory build expected this week and no real change in fundamentals. WTI is back testing the $30/bbl marker. Apparently, oil below $30 a barrel is weighing significantly, even on most competitive producers’ finances but we will have to wait and see if a freeze on production is insufficient to keep the oil bulls on top.

Nevertheless, it appears that oil producers are keen to collaborate to prevent the oil market from further decline and even the most stubborn Saudi Arabia is giving up on its sanguine fight for more market share.

The FTSE is rallying on the back of energy stocks. BP (+4.24%) and Royal Dutch Shell (+3.51%) are leading gains in London as investors step in.

The oil market is being subjected to significant volatility for the time being. The fundamental shift on the supply curve suggests that a sustainable recovery could be ahead of us. WTI could find support at $30 and aim for a bullish breakout. Surpassing the four month down-trending channel’s ceiling, $32, a recovery could extend to $34.50/$35.00 levels. A strong collaboration in the oligopolistic oil market could even bring the $40 mark on the radar sooner rather than later.

The pound outperforms its G10 peers this morning. Combined to firmer oil prices, January data showed that UK’s inflation accelerated at the fastest monthly pace of 0.3% over past twelve months. Nevertheless the appetite is somewhat curbed by the mounting Brexit worries. Both bulls and bears stay on the sidelines before February 17-18 summit which should give some clarification on the Brexit vote. The Brexit risks are two sided. An earlier vote on Britain’s EU membership could generate heavy headwinds for the pound as uncertainty over the economic future of the UK outside the EU looms.


Draghi will ‘not hesitate’

Euro lost 1% against the US dollar yesterday and tested 0.77 against the pound as ECB President Mario Draghi hinted at more monetary stimulus in March to fight back the economic slowdown. ‘We will not hesitate to act’ he said at his speech in the European Parliament yesterday.

The euro traded flat against the dollar and the pound in Asia and gained a bullish traction in London. As we would have thought, Draghi’s words were not enough to impress the market. The insatiable euro traders are waiting to see the size of a potential action before dragging the single currency down.

High expectations may lead to another disappointment, similar to one we have witnessed in December 2015 when the 10 basis points cut and six months extension in the QE program had fallen well short of market expectations.