Oil uplifted by renewed freeze deal hopes

September 6, 2016

WTI Oil displayed an incredible rebound on Monday with prices piercing above $46 after Russia and Saudi Arabia pledged to stabilise the saturated oil markets. With Russia and Saudi Arabia being the largest oil producers in the world, the prospects of a potential deal formed by these powers has generated sharp speculative boost in prices. Although there have been talks that the cooperation marks a “new era” which would have a “critical significance”, it still does not change the current oversupply woes which have made Oil fundamentally bearish. While the short term gains from freeze deal speculations have been impressive, the commodity remains pressured with further losses expected if September’s informal OPEC meeting concludes without an effective deal.

Oil’s woes remain the oversupply fears which have haunted investor attraction and a freeze deal at the current record output levels may do little to ease these anxieties consequently weighing heavily on investor risk sentiment. For Septembers meeting to have a significant impact on Oil prices there needs to be a solution to remove the excessive oversupply but the question is are other OPEC members willing? It should be kept in mind that OPEC’s crude production jumped to a record high in August while Iran remains on a self-fulfilling quest to reclaim lost market share. The cartel faces an obvious prisoner’s dilemma from cutting production which may entice US shale to jump back into the markets.

WTI is still technically bearish on the daily timeframe as prices are trading below the daily 20 SMA while the MACD trades to the downside. $46 could act as a significant resistance which encourages bears to drag prices back down lower towards $44. A decisive breakdown below $44 could encourage a steeper decline lower towards $40.

Commodity spotlight –В Gold

Gold was propelled higher last week with the metal charging towards $1330 following the soft U.S labour report which dented expectations over the Federal Reserve raising US interest rates in 2016. This yellow metal remains highly sensitive to US rate rise speculations and with current hopes fading, further gains could be accumulated in the short term. With concerns still lingering over the health of the global economy, Gold could regain some allure as investors flock to safe-haven safety. Although prices are still technically bearish on the daily timeframe, Dollar weakness could propel the metal back above $1345 consequently handing bulls back control. From a technical standpoint, Gold needs to strongly break above $1330 to signal a further incline towards $1345.

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