The July FOMC meeting minutes revealed last night showed deepened divergence among the Fed officers, sending the US dollar lower and stock markets higher.

There are several key takeaways from the minutes. First, sluggish inflation remains among central bank’s top concerns, and it could lead to a slower path of rate hikes. Secondly, most Fed officials agreed to unveil details on the plan to shrink the balance sheet soon, indicating an announcement is possible in September. 
 
The US dollar index slid 0.34% to the 93.3 area, easing Tuesday’s gains as the market received a more dovish-biased message from the Fed minutes. Precious metals rebounded sharply as the dollar weakened. 

Crude oil, on the other hand, tumbled nearly 2% overnight as the Energy Information Administration’s latest report showed that US domestic production hit its highest level in two years. Market participants have been concerned that rising production in North America will continue to counterbalance OPEC and Russia’s efforts to freeze output to support oil prices. 
 
Source: Energy Information Administration

Sluggish oil prices are likely to deliver a negative impact to the energy sector today, and place Singapore’s oil and gas companies in a more difficult situation. Recently, Singapore-listed offshore and marine service company Ezion Holdings has suspended trading as the company is in discussions with stakeholders and creditors on debt restructuring. 

This reminded investors of several troubled oil and gas companies, namely Swiber, Ezra and Nam Cheong, all of whom were deeply trapped by huge debts and shrinking business due to low oil prices. The failure of oil and gas companies led to rising non-performing loans in the three local banks, resulting in sharp selloff in 2015. 

Ezion warned investors that significant impairments may be needed if the situation gets worse. Currently, the company’s total liabilities amount to US$1.61 billion.

Technical Analysis:

Crude Oil West Texas - Cash

  • 10-Day Simple Moving Average has flipped downward (bearish signal)
  • SuperTrend (10,2) has flipped into a bearish set-up (red colour), indicating a technical correction has started
  • Immediate support and resistance levels could be found at US$45.7 (38.2% Fibonacci) and US$48.0 (61.8% Fibonacci) respectively
  • MACD has formed a bearish crossover and is trending downwards, suggesting more downside 

 

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