CRUDE OIL price recovers on optimism of OPEC deal

Jingyi Pan, IG Market Strategist

Oil price staged a spectacular recovery. WTI futures prices shot up from $44.50/bbl levels from late Asian session to break briefly above $46.00/bbl overnight. Despite the latest American Petroleum Institute (API) report reflecting a 3.65m barrel increase in crude supplies, prices surged on the optimism that an OPEC deal may materialise.

News of increased efforts made to align members for a deal fuelled the latest move. Should an agreement to limit production come through, it will be the first in eight years. Ahead of the November 30 OPEC meeting, there remains event risks from US inventory reports in addition to non-OPEC members’ stance that could jeopardize the current recovery pace of oil prices.

Separately, the USD index remained supported around the 100.00 mark into Wednesday morning. Despite the red carpet already rolled out for the next Fed hike in December, Boston Fed President Eric Rosengren further reaffirmed the markets that only “significantly negative news” could derail the move next month. Implied probability for a December hike just shifted another 2.0% higher to 94.0% in the latest update.

While the markets have to simultaneously deal with the uncertainty from both the Fed and the US Presidential transition, we might have to contend with the fact that the Fed FOMC is watching these new developments with the rest of us, as we await further clarity on the policies by the new administration. Some glimmer of hope however could come for another contentious issue, Brexit. German Chancellor Angela Merkel have remarked that she may be willing to compromise on some issues with regards to Britain’s departure from the EU, including the access to the single market which is a key focus for global economy.