Head of Commodity Strategy, Saxo Bank Group
Summary: Crude oil has reversed earlier gains following what looks to be a well-timed tweet from President Trump.
These developments helped wrongfoot the market and sent the price crashing towards the late December lows. I agree with the president that the global economic outlook is too fragile to handle rising oil prices at this stage. Crude oil has been rising lately, not due to strong growth and rising demand but primarily due to a politically orchestrated cut in production from Opec and friends. Whether this latest tweet will do the trick in halting the rally remains to be seen but some signs have already emerged to support a pause and potentially a reversal.
The front month contract, currently April, in both WTI and recently also Brent crude trades lower than the May contract. Such a scenario called contango is normally associated with a market being well supplied. The Opec+ production cuts have in other words so far failed to create the tightness needed to support a continued rally.
Macroeconomic uncertainties still exist but the drumbeat of worsening economic data has so far been difficult to hear amid all the hype about the potential positive impact of a trade deal. We suspect that most of the positive impact of a deal has been priced in. Not least considering that global stocks have almost returned to their pre-trade war level – an unsustainable level given the raised recession risk currently emerging across the world.
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