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Where will Oil Prices go This Week as IEA Confirms ‘Record Compliance’ for OPEC Cuts?

Net oil market position mirror those prior to 70% fall in prices between June ’14 and January ‘15

Where will Oil Prices go This Week as IEA Confirms ‘Record Compliance’ for OPEC Cuts?

Oil prices closed last week in line with prices at the end of the previous week despite gains being realised in consecutive days from Wednesday onwards. After starting the week with losses on the back of dollar strength and concerns over increasing U.S. and African production, prices started moving back upwards from Wednesday onwards. This was in defiance of American Petroleum Institute data showing a spike in oil and gas inventories that were a multiple of forecasts. The 14.23 million barrel growth in inventories was the second highest on record. A subsequent report by the U.S. Energy Information Administration indicated a 13.8 million barrel increase the previous week. U.S. crude inventories are 8.1% up on a year ago.

However, growing evidence of OPEC compliance levels maintained support for prices and led to strong gains over the second half of the week. Friday’s statement by the IEA that supply by OPEC over January, estimated at around 90% of commitments made by member in December were “one of the deepest in the history of OPEC ouput cut initiatives” stimulated a further 1% rise in prices. Brent crude finished the week at $56.73 a barrel and WTI $53.86.

So, what’s in store for oil prices this week? Prices have remained steady so far this morning, Brent crude at $56.72 a barrel and WTI $53.84 immediately prior to markets opening in London. Movement today will likely be limited as market participants wait for Tuesday’s API inventories update and that of the EIA on Wednesday. A forecast in the Weekly Economic Calendar today draws parallels with the current net positioning on oil markets, at its highest level since June 2014, with those immediately preceding a slump in prices from $107 to $28 a barrel by January 2015. This, the report speculates, means that a movement to the downside from the present range is most likely. However, this week could lead to testing of recent December and January highs, especially if today’s monthly report from OPEC shows strong progress on compliance with cuts. Most analysts still believe oil prices will move towards $60 a barrel in the first half of 2017.

Gold price, meanwhile, has seen a continuation of last week’s downtrend with a 0.31% drop this morning to $1230.22 oz. Futures slid 0.36% to $1231.3. Dollar strength, with the USD close to its January 30th high against the Japanese yen weighed on gold as did positivity in Asian equities markets that followed on from another strong showing on Wall Street Friday.

However, with support around December’s low holding and continued geopolitical uncertainty around Trump policies in the U.S., Iran and North Korea launching ballistic missiles last week and European election results gold could see a return to gains in the near future according to many analysts.

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