Brexit and economy pull BoE in different directions

TVC:UKOIL   CFDs on Brent Crude Oil
OPEC market projections boost optimism

The monthly bulletin became a promising statement by the cartel about the imminent achievement of a balance in the oil market. Released on Tuesday, the report indicated that both supply and demand forces will work towards reaching the equilibrium, and a significant contribution to the bright prospects was made by the OPEC + deal, which the cartel intends to extend, if necessary.

In 2018, according to the forecasts of the organization, the world will consume 32.83M barrels produced by the cartel, 410 thousand barrels higher compared to the previous forecast. Reducing spread between spot and futures prices, suggests a decrease in spot supplies as an expected aftermath of OPEC cuts. Transition of the market into a state of backwardation (spot trades with a premium) due to curbed OPEC production, will attract investors with long positions to the futures market. The appeal for investors with long positions in futures is due to the fact that the prices is likely to converge, provided that OPEC will keep demand for spot supplies elevated.

The state of backwardation was not observed since $100 per barrel, apparently due to global surplus and price wars. Now the situation most likely speaks of the positive dynamics of both demand and supply.

Demand, according to OPEC will increase by 1.35M bpd, 70 thousand higher than in the previous forecast. The change is trivial, but the picture of all-embracing improvement is so necessary for investors looking for positive catalysts, is not it?

UK Labor statistics fuel chances for the rate hike

On the eve of the meeting of the Bank of England, the British economy "pulled out of the pack" a very unpleasant combination: weak wage growth + accelerating inflation . Prices growth in August was 2.9%, while wages gained 2.1% in annual terms. The officials of the Central Bank have less room for maneuver and the hawkish comments will help to restore the situation under control. Yesterday's pound 1-percent surge suggests the market is fully aware of touch-and-go situation of BoE, but political uncertainty severely hampers the Bank's actions. We re expecting an overall cautious tone and bearish interpretation of Carney's statements. Short-term forecast for the pound remains at level 1.30 -1.3050.

Arthur Idiatulin
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This analysis is provided as general market commentary and does not constitute investment advice.
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