What perspectives are there for oil market? | 17 February 2017

Forecast for the week from February 13th to February 17th:

XAU/USD:

I believe, previous week high (1244,64) is the best downward entry point. Gold showed increase by 7% since the beginning of the year, so I expect quotations decrease for two reasons. First of all, stock market world is experiencing big appetite for risk, that has traditional negative impact on precious metal quotes. American stock indices renew their historical highs, European and Asian stock markets show stable increase and copper shot up by 4,6% previous week. It is worth to mention, that Volatility index VIX decreased. Second of all, US dollar index USDX is growing. That is also bad for gold because of strong negative correlation between these two instruments. Trading recommendation: Sell 1244/1250 and take profit 1213.

Brent:

Over the last month oil trades in 53,83 - 57,5 range and quotes are close to upper border of the corridor. May we expect downward rollback? I think so. The first reason for price is intensive increase in US inventories. Since the beginning of the year oil inventories increased by 103,9% compared to the same period in 2016. US oil output renewed its high since the spring 2016 reaching the level of 8.978 millions barrels per day. Increased supply has also negative impact on quotes. Second reason is continuing rise of manufacturing capacity in North America. Oil drilling platforms number in US has reached highest since October 30, 2015, in Canada platforms number has reached its highest since January 30, 2015. Steadily high oil prices (compared to the beginning of 2016) allow oil producers to increase oil output. I believe that in the first half of the year quotes may increase up to $61/$62 per barrel. However, before such an intensive growth the price may shift to $54/$52 per barrel. Trading recommendation: Sell 57,40/58,5 and take profit 55,48.

S&P500:

Broad market index trades with P/E of 31,8, that suggests the yield of 3,14% per annum. 10-year treasury bonds are trading now with yield of 2,41%, so shares still have growth potential. In my opinion, S&P500 index might grow to 2337/2350 region because now we have high appetite for risk. Previous week investors got rid of municipal sector companies' shares and actively invested in internet companies' and banks' shares. Such positioning indicates large number of buyers on market. Janet Yellen's speech in Congress is scheduled on Tuesday and Wednesday. Fed chair will confirm positive trend on labor market but may insist on new rate hike after possible strong macroeconomic data release. To put it simply, Fed won't increase interest rate on March meeting, which is a positive factor for stock market. Trading recommendation: Buy 2310/2295 and take profit 2337.