Oil prices are pulling back from 3-year highs following reports that the US President would extend sanctions relief to Iran and that Chinese oil imports declined last month. Brent crude broke the $70 mark briefly during Thursday’s session, WTI put a scare into $65 and ULSD came a few ticks away from $2.10 before the entire complex seemed to just run out of steam and stumbled into the close.
The action is very similar to what we saw a week ago with a Thursday peak and a Friday sell-off, so for those hoping for an end to the bull market, it’s probably a good idea to wait a few days before calling an end to the rally.
Depending on which headline you’re reading, the Chinese customs data could be both bearish and bullish for oil prices. Some news agencies are focused on a counter-seasonal decline in imports of 9% for December, while others are noting that 2017 was a record year and that China surpassed the US as the world’s largest importer on an annual basis first time ever. It’s worth mentioning that Chinese natural gas imports are also surging as the country tries to balance a growing economy and a severe smog problem, which could mean great news for US producers long term.
While the White House is leaving the Iran nuclear pact intact for now, expectations are that new sanctions outside of that agreement will be announced, in what appears to be some sort of compromise to avoid roiling allies without giving in completely to the agreement that has been the target of so much criticism.
While the daily correlation between energy and equity prices has been minimal for the past 18 months, the common theme of low volatility between both oil prices and US equities is clear and suggests an unprecedented lack of fear in both asset classes. This may be another major theme for 2018 for those wondering just how much higher can either market go?