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Oil consolidates despite questions over stimulus

Last updated 8/20/2012 12:46 PM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

Brent and WTI both traded lower as the new week began. Investors appeared wary about taking oil higher after a mixed session for Asian Pacific equities. While the Nikkei ended slightly firmer, the Shanghai Composite lost ground again. There is growing disappointment that the People’s Bank of China (PBOC) has not eased monetary policy further, particularly given poor export numbers, and on the back of Premier Wen Jiabao’s comments last week that reduced inflationary pressures give scope for further monetary stimulus. However, there are concerns over rising commodity prices – particularly those of corn, soyabeans and oil. Last Thursday, the PBOC resumed reverse repo transactions, and this suggests that the central bank is unlikely to cut its Required Reserve Ratios for banks anytime soon. Trading was light, however, and there was no follow-through to the early mark-down. Investors were wary of selling crude ahead of the planned shut-down of a North Sea oilfield for maintenance. Brent continues to hold above support at $113, and WTI is also managing to hang on above support around $95.40. There were some mixed signals out of Europe today following a news report that the ECB may set upper targets for peripheral sovereign bond yield spreads over German bunds. However, the ECB said that such talk was premature. It is also no secret that the German Bundesbank would oppose such a potentially open-ended commitment from the ECB to intervene and support troubled euro zone countries.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.