Yesterday, Saudi Arabia’s oil minister said he is confident that the November output-cut deal between major producers will be extended into the second half of the year, and possibly beyond. Indeed, recent comments from many OPEC and non-OPEC officials suggest there is an unofficial consensus that the accord is likely to be extended by at least 6 months at the Vienna meeting, scheduled on the 25th of May. As a result, we think that in order for oil prices to rebound notably ahead of that gathering, we need to see further hints that the deal is likely to be extended for a period longer than 6 months, and/or comments that there can be deeper production cuts than previously.
Having said that though, the path of oil prices over the next days will also depend on the updated US inventory data, due out every Wednesday. Recent data have suggested a build in inventories amid rising US production, a factor that has weighed significantly on prices. Further signs that US producers are coming back into the market could limit any potential gains oil may record on speculation that the cut agreement will indeed roll over into 2018.
WTI traded in a consolidative manner yesterday, staying between the support of 46.00 (S1) and 47.20 (R1). Although the price rebounded notably on Friday, the short-term outlook remains negative in our view. The price structure remains lower peaks and lower troughs below the downside line taken from the peak of the 20th of April. Therefore, we believe that there is high probability for the bears to take control again soon and drive the battle back below 46.00 (S1), perhaps aiming for another test near 44.00 (S2). The trigger for such a slide could be tomorrow’s EIA data showing further increase in US inventories.
Aussie slides after soft retail sales data
The Australian dollar came under renewed selling interest overnight, following the release of the nation’s disappointing retail sales data. The figure for March missed its forecast for a rebound and instead fell, while the data accounting for the whole Q1 – which exclude inflation – rose by less than anticipated. Coming on top of the latest plunge in iron ore prices, signs that Australia’s consumer spending is easing may be another factor that keeps AUD under pressure.
AUD/USD slid overnight, breaking below the support (now turned into resistance) barrier of 0.7375 (R1). Looking at the 4-hour chart, we still see a negative short-term trend and thus, we expect the bears to remain in charge and perhaps challenge the 0.7330 (S1) support soon. A decisive dip below that level is possible to open the way for our next hurdle of 0.7285 (S2).
Today’s highlights:
The economic calendar is very light today. From Germany, we get trade balance for March, while from the US, we get the NFIB small business optimism index for April and the JOLTS job openings for March. In Canada, building permits for March are due out.
As for the speakers, we have two on the agenda: Minneapolis Fed President Neel Kashkari and Dallas Fed President Robert Kaplan.
WTI
Support: 46.00 (S1), 44.00 (S2), 43.20 (S3)
Resistance: 47.20 (R1), 48.40 (R2), 49.50 (R3)
AUD/USD
Support: 0.7330 (S1), 0.7285 (S2), 0.7245 (S3)
Resistance: 0.7375 (R1), 0.7400 (R2), 0.7430 (R3)
