This morning I scanned the Twitterverse for Energy related news and analysis, as I do every morning and found this piece from Bloomberg – discussing the ‘technical rally’ that oil was experiencing this AM.
Now, I’ll get into this instant analysis of a technical rally later, but there’s quite a bit more market bias in this piece than that –
Much of my job (ALL of my job) is to sift through all the information and opinions on oil and natural gas in the markets and separate the wheat from the chaff.
This one was definitively some low-grade chaff.
It points out the obvious bearish action of oil markets since July – and cites “swelling stockpiles” and “slumping demand”.
Two minute expert Dennis Kissler, senior vice president of trading at BOK Financial (who?) was quoted: “Crude is trying to bounce off the lowest levels since March as the last two weeks’ selloff in prices stemmed from a perceived slowdown in both Asia and Europe with expectations that demand destruction is coming”.
Really? Well, here’s where I – uh – demur.
Here’s my two minute analysis – Oil weakness since July has been about one thing – and one thing only: Fed and ECB moves to control inflation with interest rate rises.
That’s it. Everything else – and I mean EVERYTHING else I see, is insanely bullish for oil for the long-term. Demand may be marginally down (what did you expect from $5 gas?), but still very strong and stockpiles are also at historically low levels, despite this week’s 8m gain. But more importantly, OPEC has signaled that they’re not about to take lower oil prices lying down, with their first production cut (albeit a small one) coming in more than two years. If prices stay low, it won’t be the last, you can bet.
Europe is still undoubtedly headed for an energy catastrophe this winter, with the Russian shutdown of Nord Stream this last week and threat to halt oil imports if sanctions remain. Will the EU buckle under and abandon Ukraine?
Europe’s in a tight place. They’ve seen protests this last week against energy prices in nearly every major city in the EU as well as in Indonesia and Chile. They don’t have many options left, except trying to quell inflation with ECB raises. There’s even a liquidity shortage brewing in Europe for energy trading that could collapse the supply even further.
Here in the US, Biden has managed to jawbone prices down with SPR releases and FED raises targeting oil. Like Europe, he’s doing all he can to bring energy prices down – and although he’s not facing a shortage crisis, he’s facing something that might hurt him even worse – the midterms.
I think he’s running out of bullets here, as the Europeans are. Trying to force price caps on Putin was a pretty silly idea, and US oil companies haven’t been quick to step on their own success with haphazard overproduction. They’re content to hold the line – and their profits steady.
So, do I think today’s oil rally is a technical retracement in a bear market?
I guess it could be – But I’d also consider the idea that maybe the tricks of the Europeans and the US are running out. I doubt Biden wants to instigate a full-blown recession with many more interest rate hikes. Meanwhile, OPEC will choose when and how much more oil to put on (or take off) the global market.
Let’s see – financial tricks versus the SPIGOT. I know who I’d bet on.
