No matter how many times I witness it (and after nearly thirty years in and around financial markets that number is probably in the thousands) the fact that the mood of a market can change on a dime with no obvious change in circumstances still amazes me. That is what happened in the oil futures market a week or so ago, when the positivity surrounding the upcoming OPEC agreement to cut production changed to doubts that the deal would hold or have the anticipated effect. Nothing had actually changed with respect to the agreement, but somehow the market’s perception of it shifted. As the actual meetings approach over the next week or so though, a return to a positive outlook, and higher oil as a result of that mood change, looks likely. If we break cleanly through $55.50 this time we could even see a challenge of $60, a level that some thought would never be seen again.
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The evidence for that assertion is historical. As each round of talks that have led to this agreement has approached the market has taken a positive view of the possible effect on oil prices. The feeling seems to be that after such an extended period of pain due to low prices any differences between OPEC countries will be overcome by the desire for more revenue from oil. So far that seems to be the case, although the retracements after the fact reflect a somewhat different reality.
Firstly, even if OPEC does cut production, the price driven cuts in exploration…