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Third, US producers are increasing their drilling operations. The oil rig count increased last week for the seventh consecutive week. The rig count is the highest since February and has risen by 100 (to 432) since June. US oil inventories had fallen for six weeks, but rose by almost five mln barrels last week. For this time of year, inventories are at record levels. 

Initial support for the November contract is seen near $49.80. It probably requires a break of the $49.15-$49.35 recently lows to convince others that a near-term top is in place. From a medium-term perspective, the $46-48 band is important. Our work has shown that for some currencies, including the Canadian dollar, the rate differential story is more important a driver than oil. The Norwegian krone and Mexican peso also seem somewhat less sensitive to the vagaries of oil movement. On the other hand, the Russian ruble has become more sensitive to oil pries recently, and the 60-day rolling correlation (on percentage change) is at its most extreme reading since June.

Marc Chandler‚Äč
Global head of currency strategy at BBH
Brown Brothers Harriman

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