Equites advanced yesterday as the dollar fell and oil advanced. Thirty days ago most believed such a scenario could not develop. Commenting about the dollar, the dollar declined as the Fed indicated only two possible rate hikes versus four. However I cynically ask did consensus think the Fed will not act all in 2016?
Regarding oil, crude is now over $40 barrel, up about 50% from its lows also reached about 30 days ago. The reasons for the advance, stronger demand and lower supplies, the result of infrastructure cuts and supply disruptions.
It was reported yesterday US production is now lower than when OPEC launched its current policy in November 2014. Nigeria’s production is down approximately 20% since year end because of political unrest. Iraqi production is down about 15% because pipeline disruptions through Kurdish/Turkish held territory and an unexpected 48% decline in reserves in a major oil field, perhaps the result of the lack of infrastructure spending.
Venezuela’s production is down about 8% since November 2014, the result of extreme financial distress where the government announced the country will essentially close for seven days to cope with its electricity crisis.
Libya is a failed nation state that was producing about 2 million barrels day in 2011 to approximately 100,000 barrels today.
Will 1999 repeat itself? As noted many times oil fell about 50% in a year than rallied 50% in about 20 days on stronger demand and lower supplies, doubled by year end from its lows [10 months] and then doubled again in the next 12 months.
Today oil is up about 50% in about 20 trading days. If oil were to double by year end, crude would be around $54/barrel or about $14 higher than today. If it doubled in 2017, crude would be around $108 or where it stood in July 2014.
I am not suggesting crude will be at $108 in 20 months but I do think oil will be around $50 by the beginning of the third quarter for reasons articulated many times.
What will happen today?
Last night the foreign markets were up. London was up 0.37%, Paris up 0.30% and Frankfurt up 0.23%. China was up 3.65%, Japan down 1.25%and Hang Sang up 0.82%.
The Dow should open nominally higher as oil is up again The 10-year is
