Sanctions Lite Boosts Oil But Beware The Russian Bear

The U.S announces a sanctions “lite” package on Venezuela fueling further rallies in crude, but deteriorating relations with Russia could have a larger downstream effect.

Another storming rally overnight from both oil contracts with the highlight being WTI nudging above the magical 50.00 a barrel level. Both contracts fell one percent initially before charging higher by some two percent to close in New York near their highs. More significantly from a technical perspective, both contracts tested and held their respective 100-day moving averages on the initial pullback suggesting the rally still has plenty of legs.

 

The main event was the U.S. Governments announcement of sanctions on Venezuela. Admittedly they were a sanctions “lite” package, only targeting President Maduro’s assets in the U.S. or under U.S. supervision. The implicit threat though is that the level of sanctions can be ratcheted up from this low level. This shot across the bows rather than a full tactical strike kept oil bid during the latter half of the session.

 

Traders, however, should keep an eye on the deteriorating relationship between Russia and the United States. With new sanctions pending from Washington, this has the potential to cause much more immediate supply disruptions, most especially in the Natural Gas market. The sanctions themselves will most likely draw Europe into the mire as well and could be quite supportive to the Brent contract. Already the premium over WTI is at six-month highs.

 

Tonight we will receive the first crude inventory numbers from the U.S. for the week in the form of the American Petroleum Institute’s figures. The street will be looking for evidence of the continued trend of inventory drawdowns, and the street seems to have an itchy trigger finger to buy crude should the numbers stay on target.

 

Brent spot trades at 52.50 in early Asia with crucial support at 51.40, the 100-day moving average. The overnight price action formed a double top at 52.70, just above present levels, and a break could set the scene for further technical gains above the May highs around 54.00.

WTI spot trades at 50.15 with the 49.00/49.15 region the key short-term support. It contains the overnight low and the 100-day moving average. The overnight high just above at 50.25 is initial resistance. A break of this level opens a test of the May highs at 51.70.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Currency Analyst
Based in Singapore, Jeffrey has over 25 years experience in the financial markets, having traded currencies, options, precious metals and futures. Jeffrey started his career at Barclays Bank in New Zealand. However he has spent most of it in London and Asia.Jeffrey focuses on the Asia time zone across asset classes. A regular commentator on business news TV and Radio, he is originally from New Zealand and holds an MBA from Cass Business School, London.