It’s been quite a mixed start to the week for the markets, with Asia offering little direction overnight having recovered late on following a tough start, Europe coming under pressure early in the session and U.S. futures pointing slightly higher.
Oil prices jumped over 2% on Monday to their highest since November 2015 on growing Nigerian oil output disruptions and after long-time bear Goldman Sachs said the market had ended almost two years of oversupply and flipped to a deficit.
All of a sudden, in a major about face, Goldman Sachs is now saying that the global crude oil market has gone back to a supply deficit for the first time in two years. Goldman Sachs, one of the biggest oil bears on the street, is starting to see some of the things I have been writing about for the past few months.
The third week of May returns to more extensive economic data after a somewhat lighter second week that ended with the still very important US Retail Sales. There are no central bank rate decisions or further Quantitative Easing (QE) announcements expected this week. Yet international fundamental influences are still there in the form of Wednesday morning’s Organization for Economic Cooperation and Development (OECD) Q1 2016 Quarterly GDP Growth.
OPEC said the global oil market is oversupplied and signaled the glut may increase this year, as surging output from its members makes up for losses from other countries whose production has been hit by a price fall.
Crude oil prices are having a hard time trying to decide whether they should be focused on risks to supply or risks to demand. Early on Friday it appears that the risk to demand fears are outweighing risks to supply fears as the dollar rallies and economic concerns weigh.
Now you see it, now you don’t. Presto chango, and all of a sudden barrels of crude are disappearing at a time when demand is rising, causing a path to global oil supply tightening. Not only did the Energy Information Administration (EIA) shock the market with a 3.5 million-barrel-drawdown, the International Energy Agency (IEA) is lifting its global demand forecast.