Oil Surges After Modest OPEC+ Boost And Bullish EIA Report

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By Anna Peel. Originally published at ValueWalk.

biggest crude oil production companies

OANDA – Investors focus on Fed path, Stocks were oversold, Oil surges after modest OPEC+ boost and bullish EIA report, Gold surges as Fed rate, Bitcoin above $30k

US stocks are playing a game of dizzy bat (players place a baseball bat on ground and spin 10 times) as traders remain divided with recession calls and on when the Fed could be in a position to pause their interest rate hikes. Hopes for a less aggressive tightening campaign by the Fed improved after a wrath of economic data suggests the economy is softening and that inflation is cooling.  We might not see a significant deceleration with inflation prints, but expectations are growing that the Fed won’t maintain an aggressive inflation rate hiking campaign.


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US stocks are rallying ahead of Friday’s nonfarm payroll report as some traders expect to see cooler labor demand, which could slightly ease some inflation worries.

Earlier in Europe, stocks were supported as oil prices softened on expectations OPEC+ would ramp up production in July.  The mood early in NY was rather downbeat after Microsoft had to lower their quarterly outlook, but a good amount that could be attributed to unfavorable FX moves. ​

Bearish sentiment remains overdone, and a lot of the upcoming profit warnings should mostly be already priced in.  Stocks should start to eventually push higher this summer as economic activity moderates.

Oil

The Saudis pulled it off again.  They managed to keep both the Russians and Americans somewhat happy, while boosting production targets without triggering a collapse in oil prices.  The oil market will still remain tight given the production boost is modest at best. Hikes for both July and August will be 50% higher at 648,000 bpd. The original plan of 430,000 bpd of output was not getting the job done and with China’s COVID situation and easing of lockdowns, it was easy to justify an increase at this meeting.

Crude prices rallied as the OPEC+ decision does little to change how tight this oil market remains. Also providing support for crude was a bullish EIA crude oil inventory report.  The headline draw of 5.1 million bpd was larger-than-expected while demand for gasoline and distillates surged. ​ ​

With hurricane season now here, it is hard to imagine anyone becoming overly aggressive with a call for a major pullback with oil prices. WTI crude seems like it will continue to head higher as inventories will remain low, US production remains stuck at 11.9 million bpd, and after US extended its streak of exports to a 12th straight week.

Gold

Gold is close to breaking out here as investors scramble for safe-havens as relentless inflation fears drive economic growth slowdown calls.  A tremendous amount of uncertainty remains with how surging energy costs will drive the inflation theme and whether that will force the Fed to continue hiking rates by half-point in September.

Also providing a boost for bullion was Microsoft’s outlook warning, which shows even the mega-cap stocks still have a rough road ahead.  If gold can close above $1880, that might trigger a wave of technical buying that sends prices towards the $1930 area.

Bitcoin

Bitcoin trading has been almost as boring as watching paint dry. Bitcoin remains rangebound and hovers around the $30,000 level.  Risk appetite is staging a rally and that has helped send Bitcoin slightly higher on the day.

Bitcoin will get its groove back once bearish sentiment on Wall Street improves, but that will likely take several more weeks.  The key to risk appetite will be investor expectations for what the Fed will do beyond the summer.  Bitcoin is forming a base but most traders are still licking their wounds. If Bitcoin can recapture the $33,500 level, that is what is needed for technical buying to get triggered.

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