Wall street higher, Brent crude higher, gold drops and iron ore pops - ASX futures 11 points higher

With equity markets quiet, let's turn out attention to oil markets. Brent crude rose last night (black line, third chart) against a flat WTI crude price (orange line). In the last day or so the performance disparity of the two benchmark oil prices has grown by 2.2%, widening the spread between the two prices. Brent crude prices may have been helped by those oil pundits who are getting in early to call a bounce in oil markets, due to the dampening effect that low prices is having on smaller US producers and, in turn, net supply into the global crude market.  Tony Hayward (made famous while CEO at BP during the Deepwater Horizon oil rig disaster) is now--among other things--Chairman of Swiss-based mining group Glencore and he's predicting that oil prices will begin to head back to US$80 per barrel. He rightly points out, in an article in last night's Financial Times, OPEC has done a great job of slowing or stopping net increases in US supply. What the article doesn't discuss, however, is the need for OPEC to keep emerging US producers offline and the effect that resuming OPEC supply (from smaller producers who turned the taps off during the cartel's 2014 price war) will have on supply as the war on US producers is declared a victory.

I'm an oil bear, and I believe the Saudis aren't impatient enough to allow higher prices to materialise just yet, and any speculators who anticipate reduced supply will be punished. OPEC is aiming to protect the long-term value of its assets by fighting against everyone from electric car manufacturers, to US oil shale frackers, to the clean energy movement. They need to make crude oil attractive enough to hinder the efforts of those who seek to replace it as an energy source and I would speculate that this will take more than a 12-month lull in prices. Today's first chart shows a two-year price history of Brent crude (OILUK in the Rivkin Trader platform) and I would imagine that allowing prices to drift higher would see many frackers in the US put their inventories back to work and simply put OPEC in the same position that it was in last year, forcing the cartel to leave the tap on.

Another mover last night was US dollar spot gold, which I've illustrated in today's second chart. It gapped lower the most it has in six weeks and is now sitting close to short-term buying support at around US$1,183.50. The move in gold was not driven by the US dollar, which was flat last night, and some commentators point to stronger than expected US housing data as the reason for the sell-off, the logic being that this will give the US Federal Reserve more reason to raise rates and thus move away from loose monetary policy. I don't think it's a strong point, but nonetheless it has pushed US dollar spot gold closer to one of its key buying support levels and thus traders may choose to buy at market or around US$1,183.50 with stop sells at the short-term set at intra-day lows of around US$1,178.00.

Iron ore got a great little bounce (up US$3 or 5.88% to US$54.04) last night, which will give the Aussie market something to cheer about this morning. The market was clearly happy to hear that BHP is deferring capital expenditure on its main shipping port in Western Australia and is certainly seeming satisfied with its present cost of production.


Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Japanese foreign asset purchases at 9:50am, HSBC Chinese PMI out at 11:45, US jobless claims at 11:30pm, US new home sales at 12am and Eurozone finance ministers meet at 12am, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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