Yesterday we saw Crude jump almost 2% on a weaker dollar and speculations about Russia and OPEC’s upcoming meeting. Today more fuel was added to the fire (no pun intended) and we saw Crude continue to jump, settling out up an additional 4.9% to $48.53/bbl. Going along for the ride, ULSD closed up (+.0632) to 1.6115 and RBOB jumped (+.0509) to 1.4362.
What’s going on?
Primarily Russia and their proposed meeting with the Saudi’s on energy projects and outlooks, as discussed yesterday. (for a quick refresher, read this: Russia, OPEC and a Weaker Dollar - Oh My!).
Interestingly, before the meeting news broke on Monday, the Saudi’s had abruptly announced they would be slashing the price of their oil exports to retain market share – not a good sign for the global economy (demand), or the global supply situation. But the signal that OPEC may be willing to talk, specifically that the Saudi’s are, has more than eliminated any pull back the price cut could have been expected to have.
Additionally, the Baker Hughes rig count report indicated further drops (down an additional 29), causing Goldman Sachs to project that US production will drop by 225,000 barrels per day in 2016. Reuters is also reporting that Libya’s production has fallen below 25% of the levels it sustained prior to the ouster of Ghaddafi.
Its possible traders are seeing at least a slow-down in the growth of the oil glut on the heels of these news items, reading it as a bullish signal for prices, and acting accordingly.
There is rumor of a Chinese stimulus attempt as well, aimed at ramping up economic growth in that country, and therefore oil demand. As we’ve discussed before, news out of China is almost always a big driver of market moves, as they’re still the “hail Mary pass” on global economic recovery everyone is holding out for. Positive news from China = Positive numbers on the screen.
Keep in mind - the tense standoff between the US and Russia in Syria may become an increasing factor over time. Yesterday the Russians violated Turkish airspace, and we’ll have to see if there’s more sabre rattling from the Russians, or equally likely, hawkish overreaction by the US or NATO.