One of the more interesting developments in the oil markets is the fact that oil inventories have not had their seasonal build. We don’t blame you for not noticing. This news was likely drowned out by all the macro “noise” around trade wars, flattening of yield curves, rise in inflation, tax reform, new Fed Chair (hawkish or dovish?), spike in VIX, and volatility in FANG stocks. Admittedly, there is a lot of macro news to digest.
In June 2017 we wrote about oil prices being likely too low; a lot has changed since then. With WTI now at over $60 per barrel (and Brent almost $70 per barrel), market participants are wondering how much higher we can go, or worse yet when prices will revert. One ‘signpost’ analysts quote very often is the (Baker Hughes) U.S. oil rig count, which is published on a weekly basis on Fridays. The logic is that if oil prices get too high, rig count will rise, production will grow, and prices will be depressed. Conversely, if rig counts stay flat or drift lower, oil prices will continue to grind higher.
As 2016 drew to an end, Russia and other oil producing countries joined OPEC. The members reached an agreement to coordinate reduction in oil output in hopes of lifting petroleum prices. The new year is here and it’s game on for OPEC.