OPEC+ Meeting: What’s Next for Oil Prices

Saudi Arabia also said that it would extend its one million barrels per day voluntary production cut into April, encouraged allied partners to remain “extremely cautious” on production policy, and warned the group against complacency as it seeks to ensure a full oil market recovery. Saudi Arabia remains the core force behind the market management strategy and is by far the most cautious out of all member states.

Non-OPEC leader Russia, meanwhile, had indicated that it wanted to push ahead with a supply increase, claiming last month that the market has already balanced. The Russians will increase production by 130,000 barrels per day, Kazakhstan will increase their output by 20,000 barrels per day.

Crude futures have soared to pre-virus levels in recent weeks, driven higher by substantial OPEC+ production cuts and the mass rollout of Covid-19 vaccines in many high-income countries. After soaring to pre-virus levels in recent weeks, American light oil jumped above $65.60 after the meeting. Brent prices rose as well – prices hit the highest in nearly 14 months.

Could oil rip higher now? Will Saudi Arabia actually surprise the market by not returning its two-month unilateral cuts of 1m bl/day which it is holding through February to March 2021? Does the Covid crisis still pose downside risks to the global economy?

Michael Stark, market analyst at Exness, explains: “There’s still no clear reason for OPEC’s members to expand production significantly. Many are aware that hiccups in vaccination or a slow restart to travel this year might be negative for the price of oil. Equally, US shale remains a concern for traditional producers: Baker Hughes’ rig count has risen steadily since the start of the fourth quarter of 2020, reaching 310 on 5 March, as the price incentive has returned and despite wipeout in this area last spring as prices crashed. Most producers are very eager to avoid a repeat of the glut this time last year.”

Trading CFDs on oil with multi-asset broker Exness can offer unique opportunities for retail traders because you can order practically any amount you wish. The minimum volume of an order, a micro lot, means that you can speculate on the price of USOIL (64.821 USD at the time of writing) with a margin of as little as $13 at the time of writing. It’s also possible to combine oil with various other CFDs quickly and easily with the same platform, MT5 or Exness’ web or mobile platforms. Scalping and other high-frequency strategies can come into their own with a Raw Spread or Zero account from Exness where spreads average less than 4 pips.

Disclaimer: the publication of analysis is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience or current financial situation. Analysis is not prepared in accordance with legal requirements promoting independent investment research and Exness is not subject to any prohibition on dealing before the release of analysis. Readers should consider the possibility that they might incur losses. Exness is not liable for any losses incurred due to the use of analysis.

Tesla’s just another Catalyst for Bitcoin

Michael Stark, analyst at Exness Education, agrees that the outlook for bitcoin is highly positive but doesn’t favour the narrative that this is mainly because of Elon Musk and Tesla having bought in.

For various reasons, bitcoin and Ethereum are really ‘digital assets’ more like gold than currencies in the usual sense of the term. The unique qualities of large-cap cryptocurrencies, especially after last year’s revolution in decentralised finance (‘DeFi’) and interest schemes, are what make them so popular among investors at the moment.

Derivatives like contracts for difference (‘CFDs’) and futures on bitcoin have also become more prominent since last year, especially in the case of futures. Futures on bitcoin offered by the CBOE, ICE and others posted numerous record daily volumes in 2020. For traders of CFDs, generally higher liquidity, lower spreads, removal of swaps in some cases and greater reliability of signals from futures can provide more and potentially better options to speculate without holding any transferable bitcoin.

Bitcoin’s evolution

The first and arguably best cryptocurrency, bitcoin was created over 10 years ago to function as a peer-to-peer electronic cash system. Many other cryptocurrencies have followed, but very few of them have significant utility as methods of payment.

Instead, most cryptocurrencies are used primarily as vehicles for investment with various different approaches. The average person holding transferable bitcoin appreciates it as a store of value, a hedge against inflation, an asset with strong potential for growth and for other reasons. ‘Digital asset’ first started being used widely to describe bitcoin and other cryptocurrencies in 2017: it has remained accurate because of sharp appreciations in prices and for other reasons.

Generally speaking, any asset’s value is linked with three very basic traits:

  • Difficulty of acquisition
  • Limitation of total number
  • Simplicity of verification

While it’s true that in 2015 and before, it was relatively easy to mine more-or-less any coin if you had a powerful graphic card, this is definitely no longer the case. Highly specialised and expensive equipment is required to mine even fairly minor coins now, so bitcoin in particular is extremely challenging to acquire unless you’ve paid for it, given it or purchased it from somebody else.

The number of bitcoins is limited to 21 million, with 18.63 million or 88% of the maximum supply circulating in February 2021. All transactions in bitcoin are verified by blocks, with new blocks created roughly every 10 minutes.

By contrast, the supply of fiat money is unlimited and almost everybody is paid with it. Fiat money is affected by inflation, but the value of the euro or dollar in your pocket doesn’t change significantly from month to month. Huge amounts of new money were created by central banks around the world in 2020.

There’s just no reason for the average person to buy things with bitcoin, gold, Ethereum or really any other non-fiat asset. Why would you pay with something that you think will almost certainly appreciate in price over the next five, ten and more years?

Tesla’s $1.5 billion – a drop in the ocean

Tesla’s purchase of $1.5 billion worth of bitcoin on 8 February was about 0.18% of the cryptocurrency’s total market capitalisation at the time. Against this, approximately 2.3 million bitcoins – nearly 15% of the total current supply – haven’t moved anywhere in the past six years according to data from CoinMetrics. The annual figure for 2020 from Digital Assets Data was nearly 11 billion BTC, about 60% of the total supply.

Now, according to blockchain.com, daily transactions remain about the same as in the aftermath of 2020’s crash. Crucially, they’re significantly lower than in Q2 2019, suggesting that the proportion of participants in bitcoin for the long term is increasing:

It’s clear that large numbers of investors bought bitcoin cheaply in March and April 2020 and continue to HODL. Sentiment rules in crypto markets, so if a very large community of HODLers thinks the price of bitcoin will go up, it probably will eventually.

The unique and revolutionary factor in favour of bitcoin late last year was interest. While DeFi was the source and saw significant interest among enthusiasts, other schemes with lower barriers to entry attracted huge numbers of average investors. Crypto Earn and similar programmes plus superchargers offered by exchanges gave investors APRs of up to 6 and 7% paid in bitcoin on deposits from 0.025 BTC.

This is what really seems to be driving the price of bitcoin upward. With zero or near-zero fiat rates in all major, advanced economies and many popular large-cap shares dramatically overvalued based on price: earnings, there are very few investments available that generate non-trivial cashflow. At the same time, record volumes of new fiat money from ultra-easy fiscal and monetary policies around the world have given many people spare cash to invest even as others struggle with unemployment and uncertainty.

Institutional investment boosting sentiment

Apart from Tesla, Morgan Stanley’s investment unit is also rumoured to be considering further involvement in crypto markets, specifically a significant purchase of bitcoin. Separately, MicroStrategy’s event Bitcoin for Corporations on 4 and 5 February involved about 1,000 CEOs and thousands of other attendees as Michael Saylor and others highlighted bitcoin’s potential as an investment for companies.

Morgan Stanley’s insights point to bitcoin’s increasing popularity as a store of value. However, for the average person who actively follows the price of bitcoin and major altcoins, none of the bank’s recent research is anything new. Bitcoin has been fairly widely seen as ‘gold 2.0’ for some time. It’s also quite obvious that if a large majority of participants are HODLers and have no desire to sell, bitcoin has at best limited practical value as a currency as opposed to an investment.

PayPal, Tesla, Morgan Stanley, Mastercard and any others adding bitcoin as an option for payments and buying relatively small amounts are definitely positive for sentiment. Nevertheless, here’s the bottom line: there’s absolutely no reason to pay with something that you think will almost certainly appreciate in price over the next few years which also pays potentially much higher interest than anything else.

Trading bitcoin at all-time highs

Prophecies came thick and fast last year that the expansion of futures on bitcoin and greater involvement of financial institutions would lead to a reduction in volatility. This hasn’t happened: bitcoin is still one of the most volatile underlying assets for any CFD.

BTCUSD’s average true range (ATR) in February so far has reached as high as $2,160, about 5% of the price at the time and much higher than any other CFD with a roughly equivalent daily volume of trading. Volatility can provide opportunities for traders, but it can also increase risk significantly.

Traditional strategies for setting stops (stop loss) based on ATR multiplied by 1.5 or 2 could lead to very high potential losses if applied in the current environment. Instead, a simpler and potentially less risky approach would be to set stops based on areas of clear support on middle timeframes like hourly (H1) and four-hour (H4).

Crypto sceptics are fond of repeating that bitcoin has no fundamentals, so trying to understand the rationale behind movements with reference to anything other than sentiment is futile. There is an element of truth to this, but in 2021 fundamentals are likely to become more important because of the surge in retail investors looking for cashflow. As average rates of interest across exchanges fluctuate, one might expect strong movements by bitcoin.

Start with $15, not $1.5 billion

With Exness, you can open the smallest trade for bitcoin – a micro lot, 0.01 lot – with less than $5 at the time of writing. This is a quick and convenient way to speculate on the price of bitcoin while limiting the sizes of potential losses.

Equally, if you want to understand the market more before you risk real money, Exness offers free demo accounts. You can use one of these to practise trading bitcoin against the dollar, yen and won with an accurate simulation of real conditions but no possibility whatsoever of losing real money.

One of the unique features of trading CFDs on bitcoin with Exness is the absence of swaps. Having no overnight fees means that you can hold any position as long as you like if your account’s equity is more than the margin requirement. What’s more, Exness Education analyses BTCUSD from a technical perspective most weeks, giving traders the lowdown on areas of possible importance on key charts.

Elon Musk doesn’t directly affect the already highly positive outlook for bitcoin based on both charts and fundamentals: it’s the community of traders and investors who do. You could also join this innovative market with just a few straightforward steps!

Disclaimer: the publication of analysis is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience or current financial situation. Analysis is not prepared in accordance with legal requirements promoting independent investment research and Exness is not subject to any prohibition on dealing before the release of analysis. Readers should consider the possibility that they might incur losses. Exness is not liable for any losses incurred due to the use of analysis.

Risk warning: trading in CFDs carries a high level of risk thus may not be appropriate for all investors. The investment value can both increase and decrease and the investors may lose all their invested capital. Under no circumstances shall the Company have any liability to any person or entity for any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to CFDs.

What do Cultural Differences and Trading Behaviours have in Common?

An investor’s attitude to risk is usually associated with their wealth, job security, and inflation. Having this in mind, you might conclude that two people from entirely different cultures and countries will invest similarly if their economic situation is the same. And you would be right. The whole concept of investment starts within communities and individual households, built on the foundation of the societal norms that surround them and constitute the fabric of their culture.

A study by Mei Wang and Marc Oliver Rieger, professors in behavioural finance, shows that cultural background influences investment behaviour, even when inflation rates and wealth are taken into account.

According to Wang and Rieger, the more impatient the investors are, the higher the value premium in a country is. Russia and Romania, for example, are such countries. Anglo-Saxons are willing to pay more for equities. Traditionally some societies tend to be quite risk averse than others, which is reflected in the make-up of the overall economy. “Ego-traders” are usually situated in the United States. More patient ones live in Germany and the Nordics, where there are more value traders who prefer to wait for more significant returns.

People’s expectations and the idea of value or value creation have changed with time. Yet culturally, many societies still favour traditional investment tools as a way to preserve or create wealth.

The most historical of all emotional connections between cultures and specific asset classes is the one that exists with gold. The demand for gold trading has moved East over the last decade, and this is primarily due  to the cultural affinity that exists between precious metal and countries such as India and China, where gold is considered one of the safest stores of value.

A lot of capital in India is stuck in hard assets because that’s the traditional and cultural mindset of the society there. The culturally defined beliefs in the country drive high demand for gold as an asset class, whether it is traded as physical gold or as a CFD (contract for difference) on the precious metal. This cultural affinity to gold is also similar in China. It is instrumental in the Lunar New Year, and 24-carat jewelry featuring the zodiac sign is frequently given as presents, both for its symbolism and centuries-old value.

Superstition is another emotional factor influencing the investment. In the Western world, stock market returns are always lower on Friday the 13th. A similar  situation can be observed in East Asian cultures, primarily China, with the number four – investors avoid all sorts of trades on the fourth day of every month.

The coronavirus pandemic has already played out differently around the world according to individual cultures. The majority of investors globally have responded by increasing their trading activity significantly, not least because most people were quarantined at home for months, with more time on their hands to trade.

Multi asset broker Exness offers some products by region depending on geographic behaviour, popular asset classes, and even religion. Its swap-free trading accounts, for example, are explicitly created for traders of the Islamic faith. According to the Koran, they cannot take part in any trading activity that accumulates interest. These particular accounts, however, allow clients in some of Exness’s most essential regions to invest freely without compromising their faith.

According to Stanislav Bernukhov, market analyst at Exness:

“Though some specific behavioural patterns may be visible through different countries, the financial markets liberate people, allowing them to achieve success no matter what education or background one might have. Mr. Market doesn’t care whether you hold a CFA license or graduated from the Ivy League – you just need to have the skills and knowledge which comes from persistent learning and usually has nothing to do with nationality.”

Investors don’t necessarily have something to learn from their counterparts in other countries, but understanding cultural differences in trading behaviour can certainly point them to opportunities they haven’t considered before.

Danger for the Dollar? 2021’s Inauguration

For weeks now, Donald Trump has complained on Twitter about electoral fraud and attacked the validity of postal votes until the topic has gone beyond stale. Crucially, though, he hasn’t actually done anything to back up his online rants except make some half-hearted attempts at lawsuits.

While we at Exness Education certainly don’t think the end result will be a national crisis as the Secret Service and FBI drag Mr Trump kicking and screaming out of the White House, a lot could happen over the next two months before the inauguration. The extent of the current administration’s cooperation with Mr Biden’s transition team could be a key factor for many financial markets in the coming weeks. Three main scenarios can be identified:

  1. The base case – somewhat disrupted and disorderly transition
  2. Unlikely but possible – orderly, smooth transition as seen in 2008 and 2016
  3. Nearly impossible – Donald Trump refuses to leave office

Presidents and markets

As a general rule, financial markets prefer the president to be a Republican. Typically (but not always), Republicans prioritise economic growth that favours Wall Street over Main Street. Social security, health, education, international relations, civil rights and various other issues are normally considered as

secondary at best. This is reflected to some extent in what happened immediately after 2016’s election:

The dollar made very strong fundamental upward movements against the yen and most other currencies between early November 2016 and President Trump’s inauguration. Participants in American markets expected boom time for equity markets: deregulation, tax cuts, pressure for easy monetary policy and all the other hallmarks of a Republican in charge.

In most respects other than his public persona, Donald Trump is a ‘turbo Republican’. He’s regularly tweeted about new highs made by American stock indices, job data and other economic indicators that wouldn’t usually receive specific comment from a sitting president. On the other hand, he has also started and continued trade wars with China and various other countries. These disputes have at times been quite bitter and disruptive to business.

Equally, the current American government’s response to covid-19 has been staggeringly, indeed almost bafflingly inept. The ‘strategy’ shifted from just hoping it would go away in the first few weeks of the pandemic to trying to ignore it whenever possible and talking about anything else in the runup to the election.

Covid is the main factor behind the current uncertainty facing financial markets. Nobody really knows when a vaccine will be widely available, just as nobody knows how governments are going to tighten measures like lockdowns further over the next few months. A Biden administration will almost certainly adopt more federal measures against covid, but the key question is how quickly it might be able to implement them if the current government refuses as expected to cooperate fully.

The base case: disorderly transition

A number of participants in financial markets had hoped that the base case for the presidential election of a clear win by Joe Biden might be realised. If Mr Biden had won a landslide, Mr Trump’s legal options would have been pretty pointless. Even if – and we stress if – postal votes have been affected by fraud, it would’ve been impossible to fake tens of millions of them.

As it happened, Mr Biden won with 306 votes in the electoral college, coincidentally the same as Mr Trump received in 2016. The key difference between the two results is that 2020 saw the Democrats win the popular vote for president by about five million, nearly double Hillary Clinton’s lead in 2016.

So far, almost all of the lawsuits aiming to challenge the results of this year’s election have been dropped or dismissed. However, the relatively narrow margin of victory for Mr Biden gives his opponent somewhat more scope to dig his heels in and question the legitimacy of results in some states than if it had been a landslide.

Markets generally seem to realise the relatively high likelihood of a disrupted and chaotic transition. Incoming appointees and departments, notably in the area of public health, are already facing challenges accessing information they need to hit the ground running from 20 January. As of 16 November, more than a week after the result was beyond doubt, Mr Trump has still refused to concede. Lack of commitment in some financial markets is one of the results:

In the middle of a deadly global pandemic that has brought record low interest rates, unlimited quantitative easing, mass unemployment in many countries and one of the worst recessions on record, you’d surely expect the annual contango for futures on gold to be more than 1.3%. You would at least expect much higher volumes of trading. The fact that many participants aren’t ready to commit

themselves reflects uncertainties surrounding how effectively covid-19 might be controlled in the USA in

the first half of 2021 given the Trump administration’s unwillingness to hand over power like they’re meant to.

Legal challenges and recounts are very unlikely to make a substantial difference to the results of the presidential election. However, the likely scenario of lack of cooperation by the outgoing government with Mr Biden’s incoming administration has markets somewhat nervous.

Unlikely but possible: smooth transition

Former president Barack Obama discussed Donald Trump and the transition in an interview with the Atlantic released in mid-November, criticising the ‘petulant’ president. However, Mr Obama’s interview was unusual for the president emeritus’ admission that George W Bush and his administration ‘could not have been more gracious and intentional about ensuring a smooth handoff’ in 2008. Few expect a smooth handoff this time.

The 14th of November saw the USA record 166,000 new cases of covid-19, the 12th day in a row with over 100,000 new cases. If the current administration shared information on new cases and their patterns with the incoming Democrats, implemented social lockdowns, enforced mask-wearing from the federal level or at least put pressure on states’ legislatures to enforce it and discouraged ‘Million MAGA

Marches’ and similar events, it’s fairly likely that the virus could be under control in the USA early next year.

If all this happened – and again we emphasise ‘if’ – markets would be likely to return fairly quickly to something resembling normal. Competent handling of covid while a vaccine is fully tested and brought to market would improve the outlook for recovery dramatically, boosting shares and oil.

However, the expected expansion of fiscal aid in that situation would probably be negative for the dollar, while gold’s performance would depend to a great extent on sentiment in markets overall. The key question for gold in this fairly unlikely scenario would be whether traders might focus more on the return to stable government or very loose monetary policy.

Nearly impossible: national crisis

Imagine Mr Trump exhausts all his legal options to no avail by around this time next month, which is very likely, but still refuses to concede or leave office, which is less likely. In this situation, 20 January 2021 would see the Secret Service, which previously guarded the president, treat him as a trespasser and remove him from the White House, if necessary by physically dragging him out.

While this scene would of course be a final and particularly bitter agony for the USA’s reputation around the world, arguably a more important factor would be rampant covid-19 in the interim. The failure of any coherent transition in such a situation would mean that the Democrats couldn’t start serious planning for containing the virus until 20 January.

A full two months of Republicans ignoring basically everything except the results of the election would be catastrophic: covid-19 is known to spread more during colder months. Left unchecked at MAGA rallies and probably anti-government riots if Trump refused to leave office it could crush any chances of economic recovery in the USA in the first quarter of next year. Gold would have perhaps the most to gain:

Gold broke above the crucial psychological resistance of $2,000 in early August and held there for a full five days, making three new all-time highs. A new round of maximum ‘risk off’ and rampant panic in markets if covid-19 was completely out of control in two months’ time could see XAUUSD and other havens shoot up again.

No guarantee of a weak dollar

Like anything else in trading or financial markets, the current ‘base case’ of a somewhat but not enormously disorganised transition from Trump to Biden is not certain. Despite December usually being one of the less active months in financial markets, this year is likely to be different.

The unsettled political climate in the USA and of course the spread of covid-19 and its effects on sentiment in stock markets mean that opportunities for daytraders in both directions are likely to continue for many symbols pretty much up to Christmas. The new year will also probably mean new volatility and uncertainty.

Thank you for reading this article from Exness Education. If this and other topics interest you, please check http://education.exness.com/insights where you can find many more discussions of key political and economic events with their possible effects on markets.

What do you think?

Do you reckon that Mr Trump is unlikely to go quietly in January? Let us know in the comments below this article!

Disclaimer: “The information on this page does not constitute, and should not be construed as investment advice or recommendation or solicitation to engage in any investment activity. Investors’ objectives, particular needs, and financial situation have not been taken into consideration. Any information regarding hypothetical or simulated performance is not a reliable indicator of future performance and should not be relied upon as a basis for investment decisions. No investment strategy is without risk.

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