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Sentiment Vs. Fundamentals: How Weak Are Oil Markets?

As investors and market commentators we must always be asking ourselves- what are we missing? This is true when we’re correct on the market and our position is winning. Obviously, it’s true when we’re wrong on the market as well. We’ve been asking ourselves ‘what are we missing?’ a bunch in the last four weeks as Brent crude moved from $75 to $70 despite a.) continued OPEC+ cuts and increased odds of a deal extension in June, b.) an unexpected end to the US waiver program on Iranian crude which has effectively banned the nation’s oil from the global market and c.) the increased threat of hostilities between the US, Saudi Arabia and Iran.

It’s obvious to point to the collapse of the US/China trade deal as keeping a lid on oil prices. After all, global stock markets are sharply lower in May and government bond yields have moved lower as investors have rushed for safety while Washington and Beijing seemed to move farther from a deal than ever. Can’t we just point to US/China relations as the sole cause of oil’s drop? Well, maybe. But it’s always necessary to keep digging for a less obvious trend and it’s wise to keep abreast of lurking risk in the market. On that note, we were particularly interested in an oil-focused piece recently released by the Federal Reserve Bank of Dallas which was focused on the link between crude prices and the break-even prices at the US’s hottest shale producing region.

The…




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