|News||OPEC bolsters oil gains for third day|
|Analysis||Crude oil continues the upside rally for the third consecutive day as investors returned to the black gold with strong a bull’s-eye after OPEC unexpectedly failed to reach an agreement and kept its production quota unchanged.|
Crude oil rallied strongly yesterday to settle at $100.80 a barrel above our marginal $100.70, supporting crude to continue the upside movement today trading now around $101.52 recording the high of $101.68 a barrel and the low of $100.73 a barrel.
The main upside support for crude was seen yesterday after OPEC unexpectedly kept their production target unchanged opposed to the widely expected increase. The members for the first time in 20 years failed to reach an agreement on production targets which accordingly remained at their levels for now.
According to Saudi Oil Minister, Ali Al-Naimi, Saudi Arabia, Kuwait, Qatar and the UAE backed the decision for more supply and for an increase of 1.5 million barrels a day. Nonetheless, Libya, Angola, Ecuador, Algeria, Iran and Venezuela opposed the move which resulted in a steady output.
Saudi Arabia though maintained its pledges to supply the market with the oil needed and cover any shortage, which is likely to keep the pressure only on the biggest OPEC producer.
We also saw crude supported by the stronger than expected drawback in crude oil inventories in the U.S. where the EIA reported 4.85 MB drop in commercial crude stockpiles, the biggest this year.
The day already started with gains for crude on the back of the support earner yesterday and bolstered by the weak dollar. The index tracking greenback’s performance moved south again on the fragile state of the U.S. economy and with the focus on monetary policies and central bank decisions from Europe today, especially with Trichet expected to signal a July rate move.
The USDIX moved south to the low of 73.69 from the high of 73.93 and now hovering around 73.72. After Bernanke said the recovery is “frustratingly slow” the Beige Book confirmed the challenges and accordingly the low Feds rates for an extended period, opposed to the expected tightening by the ECB, which is keeping the dollar south.
We still see the global economic conditions challenging for now and especially for development nations which might stem the rally crude is promising for now to only confirm as a temporary relief.
The IMF still sees world growth at 4.4% this year even as developed economies hit a “soft patch”. We see the volatility dominant and crude possible to sustain the gains temporarily on the OPEC and dollar support yet surely will remain under pressure the range-bound trading for the coming period.