The crude oil trade will be torn between trying to follow monetary policy or oil policy. Do you believe that OPEC and non-OPEC members can agree to freeze production or do you believe that the Fed can raise rates this year? Who do you trust?
While there was a lot of talk about Friday’s Baker Hughes rig count, it is what they did not tell you that may be what counts. On Friday, Baker Hughes reported that the number of active U.S. oil rigs increased by 17--the seventh weekly increase and the most in a year.
They said it could not be done, but OPEC and non-OPEC may go ahead and do it anyway. It is looking more likely to the crude oil trade that a deal to freeze oil production could get done. Last week it was Saudi Arabian energy minister Khalid al-Falih who signaled he was open to an agreement.
Is it a coincidence that for the for the first time since 1999 all three major stock averages--the S&P 500, Dow Jones Industrial average and Nasdaq--hit all-time highs, and that this happened the same year that crude oil put in a major bottom?
A year ago today the Bank of China shocked global markets by devaluing its currency and helped set up the environment for an oil market crash. While the oil market looks weak due to seasonal factors and high inventories, do we have the same situation a year later that can set up an oil market crash? I think not.
The first round of fundamental data hit the media airwaves mid-day with the release of the EIA forward projections followed by the API data late in the day. The EIA report was biased to the bearish side as they raised its estimated for U.S. production (see the charts below for more details).
The American Petroleum Institute (API), an industry group, reported a sharper-than-expected 2.1 million barrel rise in U.S. weekly crude stockpiles. As a result, hopes that the official data from the EIA would reveal a 1.3 million decrease – the first decline in two weeks – were dashed.
In what is one of the quieter weeks on the economic data side, oil has once again taken the spotlight after WTI crude dipped briefly below $40 a barrel last week for the first time in almost four months. Oil entered into a bear market at the end of last month and even now remains just under 20% below its highs from June as oversupply continues once again resurfaced.
China's July exports fell 4.4% and imports declined 12.5%. The weak state may give the Fed pause before increasing rates because of the China debacle a year ago after the Fed raised rates in December. It could also force China to add more stimulus at the same time. Yet, what also is providing support is talk about OPEC having a special meeting and rumors that they will try to bring back the concept of an oil production freeze.