Oil markets are subject to some compelling story lines right now. Trump/Xi relations are holding risk markets hostage. The US Fed seems to be in a holding pattern on rate hikes after substantially tightening its balance sheet in 2018. OPEC+ is aggressively cutting production and Venezuela’s humanitarian and political crisis is fully boiling over.
Yet, a quick glance at an oil price chart suggests that markets have ample shock absorbers on both ends of the spectrum and seem content to lazily move sideways with Brent at $60. Closing prices have enjoyed a $4 closing range since January 10th ($59-$63) and January appears to be ending with a sideways whimper after beginning with a bang. Clearly, we need the main story lines to develop further for the market to enjoy some sort of bullish or bearish momentum and break the sideways groove.
So where are we on our key risk themes as we turn to February?
With respect to global trade, US Treasury Secretary Steve Mnuchin gave a bullish jolt to stocks and commodities this week, commenting that a truce could be on the way which would remove tariffs on Chinese goods if Beijing was able to offer concessions on IP, tariffs and other issues. Equity markets are probably the best barometer now for trade deal forecasting and it’s notable that S&Ps have held on to their recent gains. Equity market pricing suggests to us that China and the US are still on course to reach some sort of truce in 2019. We also continue…