Brent crude got a real jolt upwards on Friday with a gain of 2.4% and a close of $61.69/bl. The whole curve moved up in parallel. Also industrial metals gained 1.1% with a backdrop of weakening USD and rising equity markets. All fuelled by better than expected PMI’s in China and the UK, better payrolls data in the US as well as some positive signals for a possible China – US trade agreement.
Q4-19 looks a little bit like the opposite to Q4-18. One year ago the US interest rates were moving higher in a straight line, the Fed’s balance sheet was in sharp contraction (QT), global manufacturing PMI’s were heading rapidly lower, US shale oil production growth was booming at a record high marginal growth rate of 2.2 m bl/d/yr on average in 2H-18 (rig count peaked in Nov-18). And oil tanked like crazy in response.
The market has been prepared for a repetition this year. Instead we have the complete opposite situation. US rates are falling, the Fed balance sheet is expanding ($60bn/mth), global PMI manufacturing index seems to be bottoming out and is ticking higher, US shale oil rig count is falling sharply, marginal annualized shale oil production growth is slowing, speculative positions are at low levels and ticking higher and the USD index is declining rather than rising.
No wonder net long speculative positions in oil climbed higher from low levels last week. The market has been prepared for a bearish oil-repetition of last year. Instead it is getting a bullish revers of that.
Ch1: WTI Managed Money positions. This could be a great starting position for a bull-ride in oil