WTI Crude Oil is back above $50 mark this morning. American Petroleum Institute (API, private institution) Crude Oil Inventory reported -5.2m barrel draw, the most in six months, above expectation of -1.7m. Crude Oil has had a rollercoaster price action, after initially breaking 50 early in June and rallying to 51.65, it turned swiftly south to 46.15 low on Brexit fears and now back to 50.26 (+9% from low).
Energy Information Administration (EIA, government data) inventories is due out tomorrow with expectation of -1.3m draw. Traders are focused on short term factors in regards to Oil; Brexit on global demand concerns, fresh disruption on supply chain in Nigeria and inventories data. Long term consideration of continued oversupply and inability for major oil producers and/or OPEC to freeze production will eventually return.
Brexit remains the main driver yesterday and will be for the rest of the week. Draghi and Yellen in their respective speeches overnight mentioned the risks of Brexit and they are prepared in such events. Market participants are increasingly positioned for “Vote Remain”, supporting risk assets such as equities. We anticipate uncertainty will run high until the vote resolution, with latest polls showing a close call.
In line with risk sentiment, the Australian Dollar and ASX200 will be supported in event of Bremain. The Australian Dollar failed twice to cleanly break 0.75 big figure resistance. Bremain could be the catalyst for AUD upside flow. Above 0.75, there is little resistance to April 0.78 level. Brexit, while most are prepared, can cause havoc in the market. Initial reaction of sell off in AUD and ASX200 are likely in Brexit event. In risk off scenario, a retest of 0.7145 May low is on the cards.
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