Oil prices have spiked higher this morning after Iran-backed Houthi rebels unleashed a coordinated attack on Saudi Arabia oil facilities and military bases.
With OPEC pursuing a tight oil policy and US shale oil inelastic supply response to higher prices, any disruption to the Middle East supply chain could shoot oil prices considerably higher.
Indeed, this could be the flashpoint that ignites that smouldering Middle East powder keg as apparent lines in the sand got crossed when the attacks targeted civilians.
So far, there have been no reports of significant damage or oil supply chain disruptions, but this is an evolving story that will keep oil traders on their toes.
On top of the terrorist attacks, oil prices are also buttressed this morning on the back of data surprises.
While the robust US jobs data demonstrates once again that the economy is poised to accelerate as the risk from Covid-19 recedes. China’s robust export data points to strong global demand suggesting the damage of mobility restrictions is starting to fade.
US equities’ strong performance
The bright finish in US equities on Friday may set the broader ton today. Despite the debate on inflation, tactically, everyone should feel reassured if higher yields are driven by growth expectations improving rather than market-based inflation repricing.
With interest volatility as the centre of everyone’s concern, thankfully, the beat on US payrolls provided welcome relief for equities and points to an inflexion in the labour market. The stronger-than-expected print demonstrates once again that the economy is poised to accelerate as the risk from Covid-19 recedes.
The prospects for a turbocharged recovery in US consumer spending have increased with the passage of the Democrats’ $1.9 trillion fiscal stimulus proposal and a rapid vaccine rollout that leaves the consensus forecast for 2021 US GDP growth 4.9% as much too pessimistic.
The market may be making more of a meal on yields than the US Federal Reserve. And Perhaps Chair Powell and Co will view a shakeout, especially in the frothy equity markets, as a good thing as long as financial conditions don’t tighten too much.
Still, the strong momentum in macro data heading into the likely Q2 acceleration will make it increasingly challenging to keep markets from getting ahead of the Fed curve represented by the dot plots, for instance, as already the market has priced in 2023 hikes versus the Fed.
And this week, the markets will have to go it on their own as the pre-March FOMC blackout period means investors are left to their own devices until the next FOMC meeting on 17 March.
The pre-eminent macro question for the United States in 2021 is: Will the medium-to-large burst of inflation and economic activity that is practically baked in the cake for the next six months be durable or transitory? A quick spurt or a long boom? I don’t think we can know yet, but putting pieces of this puzzle together will be the overriding theme for “Macro” in H2 2021.
On top of the OPEC surprise and Houthi led the attack on Saudi Arabia, Oil prices are also shifting higher this morning on the back of data surprises.
Traders are pricing in a US economic boom, which will create a massive uptick in demand for gasoline. The USA is the most services-heavy economy globally, and once the reopening narrative goes in full swing, that will provide the icing on the cake. And the cherries on top will unquestionably be the US$1.9 trillion of stimulus passed Sunday and the massive US infrastructure package in the works
Oil prices and traders alike have booked a one-way ticket higher since OPEC surprised the market by OPEC+ surprised the market by keeping its production quotas unchanged for April, allowing Oil to take the flyover route for the start of the main reopening surge in Q2.
OPEC’s supply strategy continues to work because catching the market by surprise, and traders are left to play catch up to OPEC’s conservative demand expectations
Oil sands give prices a boost with a half-million barrel output cut
Major oil sands producers in Western Canada will idle about half a million barrels a day of production next month, helping tighten global supplies as oil prices surge.
Canadian Natural Resources Ltd.’s plans to conduct 30 days of maintenance at its Horizon oil sands upgrader in April will curtail roughly 250,000 barrels a day of light synthetic crude output. President Tim McKay said in an interview Thursday. Work on the Horizon upgrader coincides with maintenance at other sites according to media reports.
Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi