WTI bears on the prowl

7 December, 2016

WTI Crude was vulnerable to sharp losses on Tuesday following reports of OPEC’s output rising to a worrying record high of 34.19 million barrels per day in November which revived the oversupply concerns. It is becoming quite clear that the effects of last week’s expectation-defying production cut deal in Vienna is warring off as investors come to terms with the painful OPEC reality. For the cartel to bring production back down to the optimistic 32.5 mbpd in January after November’s high, a mammoth 1.7 million barrels will have to be trimmed which could be challenging. When keeping in mind countries such as Libya and Nigeria that are exempted from the limits of the latest agreement amid the record high outputs, concerns may mount over OPEC failing to fulfil the agreed production cut next year. There are still many unanswered questions and patches of uncertainty over how the cartel may solve this complicated production cut jigsaw consequently pressuring oil further.

Much attention may be directed towards the OPEC and Non-OPEC meeting on the 10th of December which could spark a selloff in oil if non-OPEC refuses to cut production by 600,000 barrels per day. Russia’s oil production continues to hit fresh post-Soviet highs while Russian officials have repeatedly stated that output cuts will be implemented moderately which could impact the pending deal. If pessimism persists over the production cuts and oversupply fears intensify then WTI bears could install another heavy round of selling. From a technical standpoint, bearish investors could exploit the breakdown below $50 to encourage a decline lower towards $48.50.

Sterling bears make a comeback 

Sterling relinquished short term gains on Tuesday with the GBPUSD sinking towards 1.265 after reports of the British government requesting parliament to honour its plan to divorce the European Union renewed the Brexit fears. The main theme driving the Sterling this year has been the ongoing Brexit saga with uncertainty and fears over the longer term impacts of Brexit to the UK economy diminishing investor attraction towards the currency. While bulls may be applauded on their ability to exploit the noise and optimism over Brexit being delayed to propel Sterling higher, the technical bounce should act as a firm foundation for sellers to drag prices lower. Investors may direct their attention towards the UK Manufacturing Production report which if exceeds expectations could provide bulls a slight lifeline. Although data from the UK continues to repeatedly display signs of economic stability, it has become clear that Brexit remains the main theme that has made Sterling sellers’ dream in the medium to longer term.

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