Thursday, 12 September 2019

OIL BULLS INSPIRED BY LOWER US STOCKPILE

Lukman Otunuga 
FXTM Senior Research Analyst

Oil prices rose more than 1% on Wednesday after the US reported a sharp drop in crude stockpiles soothed oversupply concerns.

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Speculation around OPEC+ extending production cuts coupled with easing trade tensions between the United States and China are also stimulating appetite for WTI Crude and Brent. While Oil is positioned to appreciate further amid the improving market mood, the upside is bound to face numerous obstacles down the road.

The dynamic influencing oil prices are certainly shifting from supply side to demand side factors and this continues to be reflected in the commodity’s valuation. Should US-China trade tensions make an unwelcome return and reignite fears around slowing global growth, oil will be exposed to downside shocks.

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However, despite all the uncertainty, oil still remains in the black year-to-date with WTI Crude rising 28% and Brent appreciating 17%. While this is good news for emerging market energy exporters like Nigeria who heavily depend on Oil to promote economic growth, it opens the nation to external risks.

As we head into the final quarter of 2019, the outlook for oil markets will be clouded by trade developments and global growth concerns. Nigeria has already cut its forecast for its benchmark crude oil prices to $55 per barrel from $60 due to “strong indications” of an oversupplied oil market. While the cut has the potential to cushion the nation against any unexpected price shocks, it does not change the fact that oil accounts for 90% of export earnings.

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Euro stumbles lower ahead of ECB meeting
Where the Euro concludes this week will be heavily influenced by what the ECB does on Thursday.

The central bank is widely expected to cut deposit rates by 10 basis points, its first cut since 2016, restart quantitative easing and a new pledge to keep rates low for longer. While this may be good news for the Eurozone economy, it is certainly negative for the Euro which remains near a 2-year low against the Dollar.

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Euro bears still remain in firm control on the weekly charts thanks to fundamental and technical themes weighing heavily on the currency. A solid weekly close below 1.10 should inspire a decline towards 1.09.

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