It’s getting more and more difficult to predict the dynamics of oil prices. The asset does everything but follows the logic. The black gold started the day at the mid-57.00 area but during the European morning started sinking. Everything is fine in terms of the fundamentals. OPEC and its allies will probably extend their collective cuts beyond March 2018. US inventories continued to fall, according to the official data.
But yesterday Brent closed a little bit below October, 5 and 6 highs at 57.25 which meant a bearish reversal for the benchmark. So, today's slump was caused by the technical correction: the commodity failed several times at the 59.00 round figure and the traders, tired after the week, started taking profit. One of the main drivers of lower oil prices today was USD growth. The buck received a solid support in the morning amidst US Senate had approved Trump’s $4 trillion budget plan for 2018. There is a good chance we will see a long-awaited tax reform come true. I hope it's in this life.
As for the oil, as long as the $57 support level holds, the short-term downside is limited. If some new triggers appear, the markets may use the opportunity to go long on the retracement.
By Helen Rush
Senior Analyst at Capital Markets