Crude oil prices hovered within the recent range in early trade this morning as investors await renewed talks that Russia is ready to meet OPEC and non-OPEC crude oil producers in order to discuss the market.
The news provided strong upside momentum in the oil market yesterday, as Russia has been thus far unwilling to cut oil production and cooperate with the OPEC members in order to support the current low crude oil prices. Russia’s energy minister confirmed talks and said that a separate meeting between Russia and Saudi Arabia has been planned for the end of October for further discussion. WTI front month futures hovered around $46 per barrel this morning, while Brent front month futures continued their strong upside momentum and extended gains towards the key level of $50 per barrel.
Furthermore, Saudi Arabia reported that it has made big reductions to the prices it charges for its crude oil, however, the news had little or no effect on the prices.
On the other hand, we received a fairly bullish report showing a fifth weekly decline in the number of oil rigs drilling in the US, which provided strong upside momentum in crude oil prices in today’s trading session. Market participants will be keeping an eye on the release of the weekly API oil inventories report this evening as well as the EIA oil inventories report on Wednesday for further insight regarding the current levels of US oil fundamentals.
On the macroeconomic front, we received fairly poor US economic data on Friday, including disappointing employment figures and poor factory orders, which dampened market sentiment and pushed USD lower towards 95.0 against a basket of currencies. US non-farm payrolls hurt risk appetite and verified persistent concerns regarding US employment conditions. However, looking into the positive side, we could presume that an interest rate rise does not appear as looming as we initially expected.
This week, the main focus will turn to major central banks, where we expect no policy changes from the Bank of England, Bank of Japan or the Reserve Bank of Australia. The Bank of Japan is scheduled to hold a policy meeting on October 6-7. In the US, investors will be keeping an eye on the release of the trade balance and weekly jobless claims data as well as the Federal Reserve minutes from the latest FOMC meeting.
We continue to expect high volatility and nervous trading conditions in the oil market, as fundamentals remain fairly bearish. However, the recent USD weakness seems to provide some support in crude oil prices, while Thursday’s FOMC minutes could give further clarification regarding the timing of a possible US interest rates rise. WTI front month futures are likely to hold immediate support at $44 per barrel, while subsequent gains could focus on the $46.50-48.00 per barrel area. We expect the strong uptrend for Brent futures to continue in the short-term, suggesting a possible retest of the key $50 per barrel area.