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Will OPEC Cuts Fail on Shale?

Tuesday, April 11, 2017

Today's Spotlight Market

Crude Oil futures have been on a tear of late, driven by potentially tighter global output and geopolitical events. The first several months of the new administration had been relatively quiet on the geopolitical front, but several recent actions have Oil traders a bit on edge. The firing of Tomahawk missiles into a Syrian airbases suspected of taking part in a chemical attack on civilians caused Oil futures to move higher last week. The knee jerk reaction propelled prices, but relations with Russia may be a larger concern for traders.

Fundamentals

Prior to the airstrikes, the Trump administration had been accused of being too cozy with Russia. However, the military action has caused an escalation in rhetoric between the two superpowers, which threatens to undermine recent strides in relations between the US and Russia. While Syria is a relatively minor Oil producer, Russia overtook Saudi Arabia as the world's largest producer and the friction between countries could have trade implications. While OPEC has been compliant with production quotas, US production, namely shale, remains the big unknown. According to Baker Hughes, the US rig count rose by 10, which is the 12th consecutive weekly increase. The increase brought the total rig count up to 672, which is the highest it has been since September 2015.

Technical Notes

Turning to the chart, we see the May Crude Oil contract rising sharply since late March. Prices have broken through resistance at 52.50 and have tested minor resistance around the 54.00 level. There is significant resistance around the 55.00 mark. The RSI is severely overbought, which may hamper prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst