After the bullish start of the year, the rand has started to weaken since the last Thursday. Let’s point out the main factors affecting the ZAR and set the key levels for this week’s trading.
Oil market overview
Oil prices dropped to $50.40 on last Thursday following the restart of two key Libyan oilfields which can produce nearly 400K barrels per day. Libya is exempted from the OPEC output cut agreement. So, increased crude output of this country would offset efforts by OPEC members and other larger crude producers to cap a global oil glut.
Brent oil futures extended their losses on Friday after Baker Hughes showed a rise in US oil rigs for a 15th week in a row. Rising US oil production is one of the biggest headwinds for oil prices in the medium term.
In 2016, US shale companies reached the break-even point at prices of $30-40 per barrel, so, no wonder we see how the production of shale oil is growing. The breakeven cost per barrel, on average, to produce Bakken shale at the wellhead has fallen to $29.44 in 2016 from $59.03 in 2014, according to Rystad Energy consultancy. The only thing that might stem a nagging growth of the US oil industry is the shortage of natural resources. There is a great problem of exploration of new deposits. Donald Trump had recently signed an order allowing expansion of drilling activities to remote places such as the Arctic. But this will unlikely encourage shale oil producers to launch a range of new offshore projects, as they are very costly. The shortage of US oil resource might be supportive of oil prices in the longer term. At the present moment, the data indicating a revival in the US oil industry will continue exhibiting a certain degree of pressure on the oil prices.
In May, investors will closely monitor the process of negotiation on the extension of the OPEC-led output cut agreement. OPEC Secretary General Mohammed Barkindo in his recent comments said that efforts to get a consensus on the deal extension before the Vienna conference in May are under way. He also suggested that the supply cuts were rather effective in keeping oil prices above $50 and curbing global crude inventories. Therefore, additional deeper cuts are needed to reignite oil price rally through the mid $50-barrel level.
In the next few days, traders will be waiting for the American Petroleum Institute (API) report on the number of US crude and refined product stocks and for the official figures from the Energy Information Administration coming on Wednesday. A substantial drop in the US stockpiles will be a tailwind for oil prices.
If we look at the daily charts of the US dollar index and the USD/JPY pair, we will see a misleading trend.
Britain has to leave the European Union in 66 days. Will it leave with a trade deal (good for the GBP) or without one (bad for the GBP)?
The last "Pennant" pattern has been broken, so bulls found resistance at 1.2915. Nevertheless, the market is likely going to move on, so we should...
USD/CHF remains weak across the board and stays strong with a bearish consolidation below the 200 SMA at H1 chart…
There's no any reversal pattern so far, so the market is likely going to test the nearest resistance area in the short term...