True enough as we had expected in our May 24th article that oil price will charge further, as June 8th saw price went as high as around $51.70 a barrel on long bookings by many market participants, even though there was no clear economic growth reason for the bookings. The only reason is the projection of a balanced price as production decline.
That is oil rise because of reduction in supply, not through increase in demand; in which speculators have reduced their net longs for the past four weeks. With the Brexit fate to be decided this week, we expect oil to charge further up testing the $55 a barrel level, shall the UK decided to remain in the European Union on ground of improved risk sentiment.
Shall the UK decided to exit the EU, we expect a fall in price by at least 15%, most likely we expect market to test the 61.8% of Fibonacci retracement from the low of Feb 11h to the high of June 8th – around $35.50 a barrel. Safe haven dollars will be in demand amid the market turbulence created from the second biggest economic power in EU leaving the union. Brexit created market fear, albeit temporary, as there are many repercussions that come with the exit, among others:
1. Scotland may call for another independence referendum to remain in the EU.
2. UK will start the 2 year negotiation and may see a Prime Minister change.
3. Anti-EU parties in Greece and Italy may seize the UK decision to strengthen their case.
The exit of the UK could mark the failure of EU and any economic coalition in general. That is why European leaders including the United States have pursued all necessary means to convince the British to remain in the Union.
Sentiment from the futures markets, shows that speculators are more concerned about risk as net longs are reduced for the fourth weeks in a row, from the high of 368,769 contracts as of our last article to 312,585 contracts as of June 14th, last week.
Halal Traders remain bullish and expect price to continue pushing upward.
Please read our risk warning disclaimer.