Crude Leaps, Pulls Gold And Almost Everything Else With It But U.S. Equities Wary And Hang Back

We think U.S. stocks have the right idea. Watch out!

A run up near $50 per barrel for West Texas Intermediate crude is perhaps a good sign for the future of oil prices as is a Brent North Sea pricing level over the magic $50 level.

“We have reduced the probability of a return to the $37-38 area per nearby [dated] WTI," said Jim Ritterbusch of oil consultancy Ritterbusch & Associates in North Wabash, Chicago. "We will maintain a long standing view that price declines below this support level are virtually off of the table.”

“Why now?” we ask. What has changed so drastically, except perhaps the fervor of misinformation?

U.S. oilrig counts have been dropping week after week, yes. And there is volatility in the Middle East’s political situation. (When hasn’t there been?)

And there has been a persistent rumor that the Saudis and the rest of OPEC are going to have a sit down with the Russians about how to nudge prices higher. There are a lot of big buts in that rumor, the chief among them is that the rumor arose before Putin and the barbarians began running amok in Syria, which the Saudis are not likely to look kindly upon.

We consider that some of the rise in oil is indeed due to Russian actions in Syria. They certainly don’t want to mess too hard with NATO, which would dispose of the paper tiger handily – and happily.

In the same region, we also have Iran about to come back on line with its large supply unhindered by western sanctions. Reports say that Iran’s Asian customers have yet to start buying at pre-sanction levels because they have contracts with other producers. However, the price rise recently represents an opportunity for Iran to re-enter the markets.

A little more about supply follows.

The U.S. Energy Information Administration said in its Short-Term Energy Outlook issued today that total world supply is expected to rise to 95.98 million barrels a day in 2016, 0.1% less than forecast last month.

Global oil demand will grow by the most in six years in 2016 while non-OPEC (read: North America) supply stalls, according to the monthly U.S. energy report that suggests a surplus of crude is easing more quickly than expected. Demand is going to creep up by 0.2% in ’16.

Our feeling is that until Saudi Arabia gives the big OK, prices may rise a bit, but not so much as to encourage U.S. and Canadian re-entry on levels high enough to pay for fracking energy or tar sands oil. We’re probably right at that inviting level right now. You know that American and Canadian suppliers are licking their chops over the chance to come back in.

The dollar went lower by 0.80% today on sentiment that the Federal Reserve will not be raising rates this year. The move helped push dollar-denominated commodities up in price, including precious metals.

Gold rose by almost 1%. Nearly 2/3rds of that was due to greenback weakness. Silver also rose about 1% but the biggest winner of the day was platinum, up nearly 2.5%.

Also dipping today were yields on the U.S. 10-year bond, reacting to the dollar drop and the promise of steady fed interest rates.

Let’s see what happens with oil the rest of the week and next. If the Russians get a shotgun blast in one of their planes as they continue to intrude on Turkey, watch for oil to spike even more. But then we’d watch for equities to surrender and perhaps go into a bear market.

Wishing you as always, good trading,