Daily analysis | Oil trades lower ahead of OPEC & non-OPEC ministerial meeting

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FXGiants – Oil prices declined on Friday, ahead of a meeting today in Russia between the energy ministers of OPEC and non-OPEC nations. Six ministers will gather to discuss compliance with May’s output-cut deal, as well as the market outlook. Even though no action is expected, investors may watch closely for any headlines regarding capping or reducing production from Libya and Nigeria. Back in May, both nations were exempted from participating in the deal because their output had been curbed by conflict. Since then however, both countries have raised production notably, undermining efforts by the rest of the producers to limit supply and rebalance the market.

As such, we think that market focus today will be on whether these two nations can be brought into the output-cut agreement, or whether OPEC can find a way to offset that production increase by reductions elsewhere. Specifically, there has been chatter recently that Saudi Arabia is considering reducing its own exports in order to offset rising Libyan and Nigerian output. Any signs that this may happen or that OPEC may take other steps in order to deal with this rising-output situation, could help oil prices to rebound. Besides oil, such signals could also prove positive for the currencies of major oil exporting nations, like Canada and Norway.

WTI traded lower on Friday falling below the support (now turned into resistance) barrier of 46.85 (R2). Nevertheless, the decline was stopped at the 45.55 (S1) level, marginally above the prior downside resistance line drawn from the peak of the 25th of May. As long as the price is trading above that line and also above the short-term upside support line taken from the low of the 21st of June, we consider the short-term outlook to still be somewhat positive. If Libya and Nigeria join the output-cut accord, we may see WTI rebounding. A break above 46.25 (R1) could confirm the case and could initially aim for the 46.85 (R2) level. Another move above 46.85 (R2) may trigger extensions towards 47.55 (R3). Switching to the daily chart, we see that WTI is still trading within the downside channel that has been containing the price action since the beginning of February. As such, we would treat the short-term uptrend, or any possible extensions of it, as a corrective phase for now.

As for the rest of today’s highlights:

During the European morning, we get the preliminary manufacturing and services PMIs for July from many European nations and the Eurozone as a whole. The consensus is for most of the manufacturing indices to decline slightly, while most of the services prints are anticipated to tick up, something that would drag Eurozone’s composite figure marginally lower. In any case, we think that relatively unchanged prints could still be encouraging news for ECB policymakers, considering that all of these indices are expected to remain at elevated levels, consistent with robust growth in the Eurozone. Another month of solid PMIs would be in line with our view that the ECB may continue shifting to a more hawkish stance at its upcoming meetings.

EUR/JPY traded lower on Friday after hitting resistance at 130.50 (R2). The pair has been oscillating between that resistance and the support of 128.60 (S1) since the 6th of July and thus, we consider the short-term outlook to be neutral for now. However, we remain positive on longer-term horizons. The price structure on the daily chart suggests a medium-term uptrend marked by the uptrend line drawn from the low of the 17th of April. What’s more, on the 27th of June, the rate emerged above the downside resistance line taken from the 7th of June 2015. This is another factor supporting the case for the pair to turn north again at some point soon.

From the US, we get the preliminary Markit manufacturing and services PMIs for July, as well as existing home sales for June.

As for the rest of the week:

On Tuesday, we have no major events or indicators due to be released. On Wednesday, the highlight of the day will be the FOMC rate decision and the forecast is for no change in policy. We see the case for the statement accompanying the decision to have a slightly more cautious tone than previously, amid lackluster economic data. Elsewhere, we get Australia’s CPI data for Q2 as well as the UK’s 1st estimate of GDP for Q2. On Thursday, in the US, durable goods orders for June are due out. Finally on Friday, Japan’s CPIs for June, Germany’s preliminary CPI data for July, and the US 1st estimate of Q2 GDP, will all be in focus.

WTI

OPEC WTI

  • Support: 45.55 (S1), 45.00 (S2), 43.90 (S3)
  • Resistance: 46.25 (R1), 46.85 (R2), 47.55 (R3)

EUR/JPY
OPEC EUR/JPY

  • Support: 128.60 (S1), 128.00 (S2), 127.40 (S3)
  • Resistance: 129.75 (R1), 130.50 (R2), 131.60 (R3)

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