Before any output limit discussions by the major Oil producing nations took place, Oil prices are confidently heading to the $40 level. WTI surged by 1.36% to 36.41, while Brent was rising as high as $39.50, later declining to the vicinity of $39.
Traders speculate regarding the production freeze, which is expected to take effect after a meeting later this month. The growth of the US crude stockpiles by 10M barrels to a record-high 518M barrels two weeks ago, was pretty much ignored by the Oil traders, even though the increase in reserves often serves as a bearish signal. The sharp increase of Oil prices on Friday might be partly caused by the “moderately positive” US Employment data, which is likely to force the FED to leave the Funds Rate unchanged in March. Also, the Baker Hughes report showed that rig count shrunk by 8 rigs to 392. It has now been 11 consecutive week that the number of Oil rigs continues to decline in the US, contracting by more than 69% from October’s record high number of 1609 rigs. This week traders may still be watching for changes in the US crude stockpiles, but the main trend remains bullish. Shale Oil production in the US is declining, but at a certain price point it may be resumed, so the rally is definitely restricted by this fact. The question is when will the price level trigger the launch of shale production.
It is very likely that the freeze plan will soon be implemented, as more and more oil exporting countries express willingness to cap their Oil production. Azerbaijan announced today that the country is ready to join the pact. The only obstacle is Iran’s decision, which will be known during the March meeting.
Iron Ore futures with March delivery surged to $51.11, as China will cut steel production in accordance with their new 5-year plan to reduce excess manufacturings. Copper declined by 0.68% on these news. Silver futures with May delivery fell by 0.41%.
UK’s FTSE 100 declined by 0.5% erasing previous gains of 0.3% during the Asian session, as commodity companies surrender prior gains. Euro Stoxx 50 declined by 0.51%, German Dax fell by 0.46%, French CAC 40 lost 0.34%. Asian markets show mixed performance, Japanese indices Nikkei and TOPIX show 0.65% and 0.98% drops respectively, Hang Seng hovers around Friday’s closing price, Chinese Indices CSI 300 and Shanghai Composite gained 0.35% and 0.81% respectively, cheering the way for the new Chinese 5-year economic plan, presented on Sunday.
The sudden increase in demand for the US Dollar has strengthened it against all major peers, with EUR/USD, GBP/USD and AUD/USD losing around 0.5 percent. USD/JPY declined by 0.16% as the Yen gains some weight, fleeing from the bullish bets on stocks. USD/CHF added 0.69%, USD/SEK increased by 0.33%, USD/DKK grew by 0.45%. USD/RUB hovers around the Friday’s closing price, as Oil’s upturn counterbalances the US Dollar’s gains.
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