Oil commentary [11/08/17]

News   •   Aug 11, 2017 10:30 +08

Oil rallied in the early part of yesterdays session, up one percent in a post crude inventory afterglow. This came to a rapid end with both Brent and WTI pouring through the bottom of their respective barrels, with both closing some 2.50% from their open. The roller coaster price action seeems to be more do do with a recent influx of speculative longs unwilling to hold any out of the market risk as it does fundamentals.

Increasing OPEC production, particularly from the exempted nations seems to have been used as an excuse for the exodus but is hardly new news. The ratcheting North Korea/United States tensions saw stocks fall, gold rise and U.S bond yields fall, all price action straight out of the geopolitical tensions playbook. It was with some bemusement that the same events were bei9ng blamed also for oils price fall. Perhaps I am showing my age and 30 years in the market, but to set the record straight, a potential ICBM led exchange between North Korea and the U.S. will never be be bearish for oil prices-ever.

The conclusion I reach is that extreme short term positioning is therefore the main culprit, in what is a very highly strung, risk/loss averse short term market in 2017.

The downside pressures persist this morning in Asia with Brent spot trading at $51.60 which is its 200-day moving average. A break below here will open a move to the 100-day moving average at 50.50. Only below this level will the medium term technical picture stop looking constructive.

Things look far less rosy with WTI spot this morning having fallen well below its 200-day average at 49.15, and now initial resistance, to be trading at $48.30 in early Asia. Key support is nearby at $47.70, the 100-day average. A close below here could see more long positioning running for the exit door. This I reiterate though, may be due to weak long positioning, it is absolutely not the result of a potential conflict in one of the most important trading regions in the world.