Oil surge undone by Apple and AUD

The 7% rally proved short-lived because Apple in after hours trading dropped by 7% in response to a slowdown in (Chinese) demand. Adding to the market worries about the global economy was the Japanese yen, which at one point overnight surged by 7% against the Australian dollar, a currency often used to gauge the economic outlook in Asia. 

These developments have ensured that crude oil continues to trade in the same volatile manner that was seen towards the end of 2018. The uncertain demand outlook is creating a lot of headaches for producers who cannot just rely on the market to stabilise by cutting production. On that the basis we have seen an increased correlation between stock market moves and movements in crude oil. 

The market is likely to take some comfort from the fact that crude oil production from the Opec+ will continued to drop over the coming months. Sentiment, however, is weak with Trump’s trade war with China a major hurdle that needs resolution before riskier and growth dependent commodities such as oil can begin to recover.

The previous sell-off occurred during a time of rising demand. On that basis producers found it relatively easy to trim output and change the direction of oil. This time is different with Opec and other producers not only having to deal with a renewed pickup in US production. They also have to worry about the global outlook for growth and demand, something over which they have no control, and especially the fact that China,  the world's biggest importer of oil, continues to show signs of economic slowdown.

US shale oil production growth is likely to slow following the price slump. But if the 2014 to 2016 sell-off is anything to go by it may take up to 6 months before the impact becomes visible in the data.