Oil markets are enjoying a modestly bullish March on the back of coordinated OPEC+ production cuts and unplanned production outages in Venezuela. Peripheral bullish narratives have included dovish central bank action and progress towards a US/China trade deal which could be signed as early as April. On the other hand, global economic health fears, a persistently strong USD and elevated US production have held rallies in check.
Last week’s key headline that the US Fed plans to delay further rate hikes touched on two of these themes. Central bankers are broadly boosting risk asset levels by holding rates low. Unfortunately, traders also have to grapple with the idea that the Fed’s assessment of the US economy is dimming. The judgment of traders has been to push small gains in March with Brent moving from $66 to $68 while S&P 500 heads for a 20-point gain to 2,820.
This price action has been consistent with a year-long trend for oil. Markets are digesting large quantities of fundamental and macro news and either moving sideways or slightly higher. How are we supposed to interpret this? Are traders sanguine about risks seeing only modestly bullish opportunities ahead?
This inclination of sleepy prices opposite key headlines highlights the need to search beyond simple flat price charts for bearish and bullish risks. Two of our favorite trader sentiment gauges- options skews and time spreads- currently reveal a dodgier market than we see in the…