A sense of disappointment swept across oil markets on Thursday after OPEC delayed a decision on production cuts. Although OPEC tentatively agreed to cut oil output, the cartel's failure to decide on exactly how much crude will be taken off the markets sent crude prices tumbling more than 3 percent. With OPEC waiting on non-OPEC members before making any decision on production cuts, Russia clearly has a significant role in the deal.
Markets expect production cuts to be anywhere between 1 – 1.5 million barrels per day from November’s level with 1 million acting as the lower limit to support oil prices. With Saudi Arabia proposing to cut OPEC production by 1 million barrels per day, the question remains whether Russia will be willing to play ball in supply cuts. Investors should not overlook the fact that Iran has already stated that it cannot participate in any production cuts until the US lifts sanctions, and this will most likely impact the production cut deal.
If OPEC ends up disappointing markets by cutting production less than expected, oil prices will most likely be exposed to downside shocks. However, oil bulls are seen making a swift return if the cartel is able to cut production by roughly 1.3 – 1.5 million barrels per day.
Dollar depreciates ahead of US jobs report
It has been a rough trading week the Dollar thanks to falling US Treasury yields and concerns over the US economy experiencing an economic deceleration.
The impacts of Powell’s dovish comments continue to be reflected on the Dollar with investors now expecting the Fed to take a pause on rate hikes next year. Although bears seem to be in control, sentiment could still swing back in favour of the bulls if the US jobs report exceeds expectations. A solid NFP figure combined with encouraging signs of accelerating wage growth in the United States is poised to revive expectations of higher US interest rates in 2019. In regards to the technical picture, the Dollar Index has scope to test 96.50 in the near term.
Currency spotlight – GBPUSD
Sterling rebounded against the Dollar yesterday despite Brexit related uncertainty repelling investors away from the currency.
The primary driving force behind the GBPUSD’s jump is likely based on a softening US Dollar. With the greenback seen extending losses ahead of the US jobs report on Friday, this has the potential to elevate the GBPUSD towards 1.2800 and 1.2830, respectively. With Brexit related uncertainty and Political risk in the United Kingdom weighing heavily on sentiment, Sterling’s upside will be limited. The currency pair is expected to remain volatile, erratic and highly sensitive to Brexit headline ahead of the parliamentary vote next week.
Commodity spotlight – Gold
Gold prices jumped to a fresh five-month high above $1243 thanks to a weaker Dollar and expectations over the Fed taking a break on interest rates next year. The near-term outlook for the yellow metal continues to hang on the pending US jobs report scheduled for release today. Technical traders will continue to closely observe how price behave around the $1240 regions. A solid daily close above this point will encourage an incline towards $1248 in the near term.