LCG Research Team: Saudi continues pumping oil at record high levels in a world inundated by millions of barrels of excess oil per day, despite its squeezing finances.
The barrel of WTI retreated to $41.40, near its 200-hour moving average and is set to extend losses on fading hopes that OPEC countries would fix a production cap at their next meeting. A second consecutive week of a break below the $40 level could pave the way for a further sell-off towards the $37 – $35 area.
Cheaper oil has driven the sentiment lower in the Asian trading session. Also, trading volumes were thin as Japan was closed for its Mountain Day holiday.
Following a sleepy Thursday in Asia, the FTSE opened softer in London. Soft oil and commodity prices are weighing on the UKs energy and mining stocks.
From a technical perspective, the FTSE hit the overbought market recently, suggesting that it could be a relevant time for a pullback. Hence a valid reason, as soft oil and commodity prices, weak economic data or flight to fixed income markets, could dent the recent rally in UK stocks and encourage a downside correction in the FTSE towards 6595p, minor 23.6% retracement on June 23rd August 8th rally, then to 6490p, the 100-day moving average.
The equities sell-off, combined with the rising appetite in UK bonds, could drive even more volume into the UK sovereign and corporate bonds markets, which have become increasingly popular among the riskless-yield seekers after the Bank of England announced to buy an additional £60 billion in UK sovereigns and £10 billion in UK corporate bonds.