Fundamentals
The decision maker of OPEC, Saudi Arabia, will be present at the Doha meeting next month. This is just what the market needs to get up to $40 - $45 range. Add to this a dovish Fed and you have all the makings for a short run bull market. The current move is eerily similar to the summer rally seen last year where the market jumped from $47 to $62 and then proceeded to crash. As soon as WTI is around the profitability price range for US producers we may start to see an increase in production, as it is make or break for a number of producers. Billions of dollars has been invested in the industry since the start of the year, giving companies much needed capital. Additionally, companies have been hedging themselves against a further collapse in price. As a result, they are protected either way. This could could result in a new multi-decade low being established as producers bring tapped wells online. Saudi Aramco has ended its joint venture with Shell (LON:RDSa). This will allow the Saudi oil giant to sell a portion of its downstream assets based in the United States.
The contango (when the spot WTI price is lower than the later dated futures contracts) in the futures markets is narrowing, an indication that we could start to see significant drawdowns (reductions) in the weekly oil inventory reports.
Technicals
WTI has broken the $38.50 resistance level. The next level of resistance is around the 200 SMA at $42.55, with the market finding support at $34.00 even.
What to expect tomorrow?
A light day with minor releases out of the United States. Traders will be looking at consumer sentiment to gauge the strength of consumption within the economy. On the oil front the rig count is expected to drop for another week and move lower into historic low territory. Lastly, the CFTC positions will highlight the aggressive buying momentum with an increase in long positions.
• Michigan consumer sentiment forecast at 92.2
• Baker Hughes rig count with a previous release of 392
• CFTC Managed Money and Speculative positions