Oil continues to slip down the drain

1 November, 2016

The stock markets appear on track to continue their lower levels of volatility and possible losses as we head into the second day of the new trading week at the time of writing. We are now exactly one week away from the US election taking place and while this event shouldn’t usually dominate market attention, the fact that the race for US President is between the two most unpopular candidates in election history could provoke a different type of market reaction from investors.

The headlines at the moment are still circling around the breaking news late last week that the FBI are once again reviewing the emails of US Presidential Candidate Hilary Clinton. It is not yet known whether this will impact her current probability of winning the election, although it is safer to say that even if Clinton is declared the eventual winner that this will at the very least dominate the early weeks of her Presidential reign.  

The risks to the US election result at this point in time still rests with Donald Trump being declared the unlikely victor, which is something that has still not been priced into the financial markets. Hilary Clinton being declared as the winner is what the markets currently expect and have priced in could still result in a subdued, or even negative reaction from investors. The reason for this is because this should provide further clarity that the Federal Reserve are on track to raise US interest rates for the second December in succession.

It is worth pointing out that while the Dollar is close to milestone high levels at the time of writing and a US interest rate rise has mostly been priced into the Dollar, confirmation of a US interest rate rise would still be seen as a negative for emerging market assets, precious metals and the stock markets.   

WTI Oil below $47

WTI Oil concluded the month of October close to where the commodity commenced trading and looks at further risk to extending losses as we begin November with the price of WTI falling below $47 overnight.

The reason for the resumption of violent losses over the past week have followed concerns that OPEC will be unable to agree on the previously expected production cut during their meeting this month. Investors had previously priced in the shocking news that OPEC had unexpectedly agreed to a preliminary cut to be confirmed in November, however they have now took profits off the table as a result of this situation now leading to confusion.

The name of the game with oil at present now appears to be sell the fact that OPEC have not yet confirmed any changes in production output, while investors were previously buying the rumor but have now changed their tune.

It is worth pointing out at the very least that if OPEC members are not even able to agree within the same committee group on production levels, then there are even slimmer chances of Non-OPEC members agreeing to join this unexpected treaty. This is what is required and a change in global production output would be seen as a significant milestone on the road to leading the price of oil away from ongoing depression.

In the meantime, any further concerns floating around over OPEC being unable to follow through with their previous pledge to confirm a change in production output this month should in theory install further selling momentum.

Confirmation or renewed optimism of what investors were previously pricing into the markets with this being a change in production output would be required to enhance the potential of a price recovery for oil.


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