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Expect More Bullish News For Oil This Month

Oil

Last month we wrote a series of notes arguing that risks were either skewed sideways or slightly higher for oil primarily based on the ideas that the US central bank was turning dovish and OPEC+ cuts would tighten physical supply/demand balances. These themes are still the most important sources of risk in the market and we’ve seen key news updates on both items over the last week.

On the central bank front, the Fed’s statement from its recent FOMC meeting took another step in the dovish direction remarking the committee would remain patient in their pursuit of higher interest rates. The overall language of the note took a more accommodative look at employment and inflation trends and seemed increasingly in tune with the idea that the economy needs to be able to run further before policymakers apply the brakes of higher rates. The bankers also noted that they would take slow approach in deciding on whether to continue shrinking their balance sheet. (Our assessment is that Fed balance sheet tightening was a critical driver of stock market and oil prices weakness in 4Q’18.) US Fed officials could ultimately play as important a role as OPEC in shaping oil prices in 2019 and for now they’re clearing the path to higher prices. This could become especially true if US government shutdown, US/China trade or Brexit contagions rise as the central bank could swing even more dovish and work to push asset prices higher.

On the OPEC+ side, January production…

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