From the Floor: Saudis desperately seeking $50/b
- Verbal intervention from Saudi energy minister sends oil higher
- Move comes after price once again returns to Doha levels — Hansen
- Intervention reflects frustration at slow progress to market rebalancing — Hansen
- International Energy forum in Algeria next month unlikely to see action
- Saudi barrels seem to be aimed at escalation in short positions — Hansen
- One-year outright USDCNH indicates pair could go higher — Horchani
- Sentiment fears for China likely to impact CNH
- Monster WASDE report this evening to set framework for grains market
- CLICK ON THIS LINK FOR A REPLAY OF OUR MORNING CALL
New Saudi Ariabia energy minister Khalid al-Falih has helped to propel Brent away from the sub-$45/barrel area and put $50/b back on the agenda after warning that the kingdom could take "any possible action" to stabilise the global market.
While that could signal a move on production quotas at the International Energy Forum in September, it is more likely an effort to move markets without necessarily following up with actual action, says Saxo Bank's head of commodities strategy Ole Hansen.
"The Saudis rejected any deal at Doha but now that they see the oil price once again at the same level as in April, they are clearly frustrated at the slow progress towards a rebalancing of the market", says Hansen.
"No deal is really expected at Algeria but they may be ready to start talks again".
Oil had returned to Doha levels in April leaving the Saudis frustrated
Half-hearted attempts in the last week from weaker Opec members as well as Russia to influence price gave way quickly to the market's ongoing belief that any move upwards is likely to be capped by the return of producers in the US, but the weightier intervention of Opec's kingpin could help tip the balance in favour of a more sustained rally.
"The main message is to all the short positions in the market to be aware that Opec could do something", says Hansen. "They basically want to bring the price closer to $50/b for both Brent and WTI again".
"The takeaway is that still, there is no deal expected but they do want to see these short positions reined in".
Brent crude was at $46.08/b at 0655 GMT. WTI was at $43.64/b.
The buildup in the short position has the Saudis more than a bit concerned
Against the grain
The annual WASDE report is released this evening and that is likely to set the context for the grains market for quite some time, says Hansen.
"It's odd that options volatility has not really picked up ahead of this report and that could indicate that there is a build of consensus in the market", says the Copenhagen-based commodities chief. "The market is heavily short going into the WASDE report and if we get something that is away from the expectations, then we could really see some fireworks".
The coverage of the one-year anniversary of the sudden devaluation of USDCNH on August 11, 2015 and the resultant carnage that spread like wildfire through global markets has been relatively muted, but there is potential for USDCNH to go higher, warns Tareck Horchani from Saxo Bank's Singapore hub.
"We had some important data out of China and while industrial production came in line with expectations, fixed asset investment was at only 8.1% versus 8.8% expected", he says. "What it demonstrates is that entrepreneurs continue to be cautious about the economic outlook of the country".
Elsewhere, private expenditure growth slowed to 2.1% year-on-year from 2.8% in June while state sector investment decelerated to 21.8% from 23.5%.
"A look at one-year outright USDCNH shows that it is very well supported at the 200-day moving average and with the 1-year points trading at the lowest level since June 2014 at 1,000 above spot, there is a view from us that USDCNH has room to go higher".
Gold is looking tired and with some risk-on returning to the market, there is a chance it could break through $1,315/oz and even threaten $1,300/oz.
Gold was at $1,338/oz at 0756 GMT.