OPEC talks look set to falter

30 November, 2016

OPEC has dominated headlines today and with good cause, as the once former oil monopoly continues to struggle with internal politics in an effort to alter the current price of oil by cutting production and supply all together. There is only one problem... the rest of the world continues to pump oil outside of OPEC, and the various OPEC members are suffering from low prices so much that cutting production may not actually support them at all. It has so far got to the point where some pundits are calling the odds of an OPEC deal even happening at 50/50, my guess would be to put this figure much lower given the politics at play and how unlikely Iran is to enable any production freeze at all. So where to for oil markets from here? It's likely that markets will shift their focus back on US oil inventories data again as the main catalyst for movement and also focusing on global growth as a sign of a pick-up in the market.

So where to now if the OPEC talks break down on the charts. My focus would likely be on the key support level of $42.00 at this stage, given that the market has rushed down to that level before and will look for some sort of land in the sand, failing that the next support level down could be found just below this around the $40.00 psychological level. While it's easy to play levels it's important to realise this is politically driven so the patterns will only support movements that depend on the OPEC deal and right now the market is predicting the talks might indeed fail, and cause Saudi Arabia to flood the market in any case.

The US markets however continue to find strength from the economic data with recent figures out today on consumer confidence lifting to 107.1 (exp 101.2), this was a strong result when you compare the previous months reading of 98.6 and shows that consumers are looking to spend in the build up to Christmas. Preliminary GDP q/q also lifted to 3.2% (3.0% exp), and this is in-line with the expectations around Trump and the infrastructure building that is expected to take place over the next 4 years of his term to boost the American economy.

The S&P 500 has benefited the most from the recent movements and its lift up the charts should come as no surprise as the hawks are back in play, but also there is a look for government to spend. At present the S&P 500 has pushed through the 2200 market and at present using this level as support before looking to push higher. Market expectations are that 2250 is likely to be on the cards in the short term given the optimism from a business standpoint in the US economy, but also based on the fact the USD continues to strengthen making it cheaper for US businesses to operate. Any further drops on the chart are likely to find support though on the 20 day moving average and I would expect this to play a big part if we do find any bears still present. 

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