Energy prices are climbing for a 5th straight session, although they remain below yesterday’s highs print as the enthusiasm over a Saudi/Russian proposal to extend output cuts has been curbed.
The complex is at a pivotal level technically, with a push through $50 for WTI (which would breach several layers of nearby resistance on the charts) critical to keep the momentum going. Refined products have both stalled out temporarily around their respective 50 day moving averages, and if they fail to keep moving higher from here, the rally is at risk of becoming nothing more than a corrective bounce during a larger move lower.
The IEA’s monthly oil market report said that in the first quarter of 2017, the global oil market was “almost balanced” with supply exceeding demand by only 100,000 barrels/day. The agency seems to be trying to put a bullish spin on the outlook for supply/demand balances, still predicting inventory drawdowns that it’s been waiting on for months, even though its demand forecast for the year was cut slightly. The agency also cautioned that production in Libya and Nigeria – 2 countries exempt from the production cut agreements – may be rising sustainably and could serve to negate the cuts elsewhere.
The S&P 500 & Nasdaq closed at record levels yesterday, with the climb in oil prices taking credit in the headlines. The correlation between the asset classes has been weak for the better part of a year, and a month ago when oil prices were 8% higher and equities were selling off, no one was so eager to try and pair the two.
The Euro is trading at a 6 month high today, and while currencies have had a similar weak correlation to energy prices as equities have, don’t be surprised if it too takes credit for the push higher in oil.