The Oil price broke into the green area today pushing the expectations of the OPEC meeting. The hope is set on the participants to find a way to pare their production capacities. The weekly report of Baker Hughes showed that the drilling activity rested, as the growth of active drilling rigs ceased. Last week, their number fell from 765 to 764 units. The US Oil producers switched from a long-term outlook to the immediate profitability of the barrel, additional capacity utilisation occurred only if it was not unprofitable. The slowdown in drilling activity suggests that at the current price below the $50, the US supply may have reached its peak.
The market has been a bit upset with the Bloomberg data that the production restriction in Nigeria and Libya is not on the OPEC meeting agenda. Given that the two above-mentioned cartel participants, freed from quotas, are the two main culprits of oversaturation in the market, closing eyes to their uncontrolled production will become a rather discouraging news for investors. The significant downside for the Oil market is not currently observed, taking into account the flight from the Dollar, the growth of net positions in futures contracts (from 358.0K to 396.5K in the week ending July 21).
Strong price growth will strengthen the chances for a transition to the ECB’s more aggressive rhetoric in September, as president M. Draghi has repeatedly expressed concern about the low Oil prices hindering the inflationary process.
Asian stocks started a week of growth. European stock markets traded in the red, as the beginning of the week will probably take place under the sign of caution and risk aversion before the FED’s meeting on Wednesday. The European currency retreated after the contradictory growth last week, as, despite the lack of specific instructions and terms, the markets took Draghi’s comments positively. Today’s reports of the PMI activity in Germany and the Eurozone turned out to be worse than expected, which, coupled with sluggish inflation in the Euro area and a rather illogical rise after the ECB meeting gives grounds to believe that the European currency is overvalued and expects a correction. However, the rollback is hampered by the presence of the downward risks in the US currency, among which are new details in the investigation of the president’s relations with Russia, as well as the FED’s uncertain position regarding the reduction of monetary support and massive MBS and Treasuries portfolio. However, amid vague and cautious Draghi speech it’s likely that in this situations rhetoric the FED will look more aggressive and that will help the Dollar recover.