Intraday Market Thoughts

Oil Streak Stopped, CAD Vulnerable

by Adam Button
Aug 23, 2016 0:13

The longest streak of consecutive oil gains in four years was finally halted on Monday. The pound was the top performer while the Canadian dollar lagged. The Japan PMI and a speech from Kuroda are due next. The Premium Video outlining charts & the 9 existing trades is below.

A seven-day, 16% rally in oil prices finally ended in a 3% decline to start the new week. The rally began on fresh talk of an OPEC production freeze but had all the elements of a short squeeze.

A series of negative stories on supplies were ignored until Iraq revealed a weekend deal to restart 150K bpd of idled oilfields. Nigeria also may have reached a deal with rebels to halt attacks on oil infrastructure but the loose and seemingly shifting nature of the leadership of the Nigeria Delta Avengers make that a questionable claim. If it turns out to be true, Nigeria could eventually add more than 2 million bpd of offline production.

In terms of trading, the fundamental underpinning of oversupply and massive inventories of petroleum products hasn't changed. The bounce from $39 to $48 has all the hallmarks of a brutal short squeeze.

Seasonally, the drawdown phase of crude inventories is coming to an end and refinery maintenance is due to begin. Baring a strong hurricane season, expect to see oversupply weigh on prices. In terms of FX, CAD remains highly vulnerable. It's also vulnerable to soft economic data after Friday's retail sales report was a major disappointment.

Looking towards Asia, the calendar remains light on Tuesday but features the Nikkei Japan manufacturing PMI at 0200 GMT. In addition, Kuroda is expected to speak at 0400 GMT. However he's talking at a Fintech conference so comments about monetary policy may be limited.

Act Exp Prev GMT
Flash PMI Manufacturing
49.5 49.3 Aug 23 2:00
BoJ Gov Kuroda Speaks
Aug 23 4:00

Latest IMTs