Investors
remained alarmed last weekend as the Organisation of Petroleum Exporting
Countries and its allies, known as OPEC+, speeded up the tempo to make
additional cuts in global oil production. Saudi Arabia introduced another oil
production cut of one million barrels per day starting from July for at least
one month with a possible extension.
Some may
describe these gestures from Saudi Arabia as rather formal as Riyadh is already
producing oil below its formal quota. However, crude prices did indeed go up on
Monday, opening with a huge gap at $77.76 per barrel. If prices breakthrough
the $79 per barrel resistance they may continue further towards the upside to
$85-90 per barrel. However, prices are likely to resume falling to 2023 lows at
$70 per barrel fs they fail to cross the resistance, and it seems they are
unable to do so, while the demand side is fundamentally deteriorating amid
recession fears.
Saudi
Arabia planned its crude prices to average at $80 per barrel in its 2023 budget.
With this in mind we may expect some geopolitical turbulence in the Gulf region
that may support prices if they continue to go down.
Meanwhile,
Federal Reserve’s (Fed) officials have entered a blackout period where they are
very limited to speak about monetary issues ahead of the Fed’s meeting on June
13-14. They have missed the opportunity to deliver any comments about the May
labour market report which was released on Friday, where Non-Farm Payrolls were
reported extremely strong at 339,000, while the unemployment rose unexpectedly
to 3.7% compared to 3.4% in April. Thus, investors are looking towards the debt
market to provide some clues about further market movements. Surprisingly, the
yields on both short-term and long-term debt remain mostly unchanged without
any major decline. This may be related to the final resolution of the U.S. debt
ceiling issues as President Joe Biden has finally singed the related bill which
was approved by Congress last week. The dovish rhetoric of some Fed officials
last week may contribute to this issue. If the yield continues to be mostly
unchanged by Wednesday, it may be an indication that investors do not believe
the monetary watchdog could make a U-turn in its hawkish monetary policy soon.
All-in-all,
it would be better to be prepared for a possible downside correction of the stock
market as the S&P 500 broad market index has almost reached it technical
upside limits. The U.S. Dollar also continues to strengthen. Technically, the
S&P 500 index has a rather limited upside potential after a sudden spike
above 4280 points was reached on Friday. The nearest support level is at
4140-4160 points.
The oil
market is struggling to avoid prices plummeting towards $70 per barrel of Brent
crude. However, the recession scenario chances are high in the oil market with
downside targets at $40-60 per barrel, which is the recession target. Although
prices jumped to $78.28 per barrel on Monday after Saudi Arabia announced its
unilateral oil production cuts, they need to go further up above $79 to
continue climbing, and it seems that they don’t possess enough passion for it.
Gold prices
are moving inside the mid-term upside formation with targets at $2000-2100 per
troy ounce that have already been met. But the situation has changed
dramatically as the important support level of $1980-2000 per ounce was
smashed. Short positions were opened after prices tested the $1970-1980 former
support level with targets at $1880-1900 per ounce.
The
Greenback has resumed its recovery after a strong labour market report on
Friday. It is time to prepare for possible buy opportunities in GBPUSD. But it
would be better to get lower price levels on the pair to open long position.
Meanwhile, practicing the sit and wait tactic would be a better option.