U.S. West Texas Intermediate and international-benchmark Brent crude oil futures rallied to multi-year highs on Thursday after the United Arab Emirates’ (UAE) oil minister hinted that an alliance between OPEC and non-OPEC producers, including Russia, could continue in some way beyond their current deal to curb oil output.
UAE Energy and Industry Minister Suhail al-Mazrouei told CNBC on Thursday that the OPEC-led plan to cut production, trim the excess global supply and stabilize prices is working so it may be extended beyond the December 2018 deadline.
“I am expecting that this group of countries that stood and have become responsible for helping the market to correct, (that) there is a very good chance that they could stick together and put a shape around that alliance,” al-Mazrouei said.
“OPEC will continue to be a strong organization and I think this phenomena of getting others to join OPEC in their cause of market recovery, and achieving enough to incentivize investments into this industry, is something in which interest is growing,” he said.
Other than the comments from the UAE oil minister, there were no major supply/demand events on Thursday. Given this stage in the rally, a spike to the upside often indicates a blow-off rally. So if there is no follow-through to the upside on Friday, I have to suspect WTI and Brent have finally hit overbought territory and may be in need of a short-term correction to alleviate some of the buying pressure.
The near-term direction of the markets comes down to whether the hedge funds will still be willing to buy strength at current price levels.
The inability to follow-through to the upside combined with a break under yesterday’s low will be a sign that the selling is greater than the buying at current price levels.
Given the way “The Herd Theory” works, if one hedge fund decides to take profits then they’ll all start selling and this could lead to a solid break in prices.
This article was originally posted on FX Empire
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