|28 November, 2018

Wednesday outlook: Oil prices rise ahead of next week's OPEC meeting, expectations of supply cuts

Oil prices surged on Wednesday as investors expect supply cuts during OPEC’s meeting next week. Asian shares were trading between negative and positive territory on U.S.-China trade uncertainty. More commentary on Middle East markets, currencies and precious metals.

Image used for illustrative purpose only. Pumpjacks are seen at an oil field in Huaian, Jiangsu province, China November 11, 2017. Picture taken November 11, 2017.

Image used for illustrative purpose only. Pumpjacks are seen at an oil field in Huaian, Jiangsu province, China November 11, 2017. Picture taken November 11, 2017.

REUTERS/Stringer

Oil prices

Oil prices jumped in early trading on Wednesday as investors bet on an announcement of supply cuts during the Organization of the Petroleum Exporting Countries’ (OPEC) meeting on December 6th.

U.S. West Texas Intermediate (WTI) crude futures were at $51.88 per barrel at 0148 GMT, up 32 cents, or 0.6 percent from their last settlement.

International Brent crude oil futures were up 44 cents, or 0.7 percent, at $60.65 per barrel.

However, market sentiment remains negative, as oil prices have lost almost a third of their value since early October.

“Options traders remain focused on downside risks following a 30 percent slide in WTI,” Erik Norland, senior economist at commodities exchange CME Group wrote in a note, according to a Reuters report, referring to the higher number of traders who have placed positions that would profit from a further fall in crude prices than those placing bets on a rising market.

Global markets

Asian shares were trading between negative and positive territory on Wednesday amid conflicting signals relating to trade tensions between the United States and China.

On Tuesday, markets dropped after U.S. President Donald Trump told the Wall Street Journal it was “highly unlikely” he would accept China’s request to hold off on a planned increase in tariffs to 25 percent from 10 percent.

But markets rebounded after White House economic adviser Larry Kudlow confirmed a dinner between Trump and his Chinese counterpart Xi Jinping at the G20 gathering in Argentina.

MSCI’s broadest index of Asia-Pacific shares outside Japan ended the day largely flat, while Japan’s Nikkei gained 0.7 percent.

“The market mood has turned cautious once again amid a flurry of trade headlines pointing to the prospect of a new round of trade tariffs ahead,” Rodrigo Catril, senior strategist at National Australia Bank, told Reuters.

Middle East markets

Dubai’s index fell 1.0 percent on Tuesday as real estate shares weighed on the market. Emaar Properties shed 3.2 percent, while Union Properties lost 3.4 percent.

Abu Dhabi's index edged down 0.2 percent with Dana Gas falling 3.4 percent and Abu Dhabi National Energy dropping 3.1 percent.

Saudi Arabia's index added 0.6 percent, with Saudi Kayan Petrochemical rising 2.3 percent and Samba Financial Group gaining 1.6 percent.

Qatar’s index was mainly flat with telecommunications firm Ooredoo the top gainer, increasing 1.7 percent.

Kuwait’s index gained 0.8 percent, while Egypt’s blue-chip index added 1.3 percent, Bahrain’s index fell 0.5 percent and Oman’s index edged 0.1 percent lower.

Currencies

The dollar gained on Wednesday after the U.S. Federal Reserve’s Vice Chair, Richard Clarida, reaffirmed the need for further rate increases, and as investors saw the greenback as a safe haven following the drop in equities.

The dollar index, which measures the greenback against a basket of six major currencies, traded at 97.42 after rising for three sessions in a row.

“Clarida comments certainly hinged toward hawkishness...we expect the Fed to remain consistent and adjust monetary policy according to incoming economic data which has so far been pretty robust,” Stephen Innes, head of trading, APAC, at Oanda, told Reuters.

“We are expecting the Fed to raise rates in December and 3 times in 2019.”

Precious metals

Gold prices steadied in early trading on Wednesday, after a senior Federal Reserve official reaffirmed the need for further rate increases.

Spot gold was steady at $1,214.71 per ounce at 0134 GMT. Prices fell to their lowest since Nov. 15 at $1,211.36 per ounce on Tuesday.

U.S. gold futures were little changed at $1,214 per ounce.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(Gerard.aoun@refinitiv.com)


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