The timing is key here
OPEC+ is going to bring back oil production, especially now with Brent above $60. The key question is ‘when?’
The March meeting is one that people are circling but OPEC members have said they’re not eager to bring-on supply just yet.
Now, Reuters cities OPEC+ sources saying the latest oil rally makes higher production “more likely after April.”
There was a quick dip in oil on the headline but it’s bounced. “After April” is vague and the oil market could be fairly tight by then.
The report says the oil market “may be ready” for an additional 500,00 bpd by April, depending on demand and whether Suadi Arabia brings back its extra voluntary cuts or not.
“Oil prices are very good now so there is no need for the Saudis to continue with the voluntary cuts beyond March,” an OPEC+ sources said. “But it is not clear if the Saudis will bring back the 1 mbpd gradually or not.”
So it looks like Saudi Arabia signals are the ones to watch.
WTI was last up 42-cents to $59.90.
German DAX -0.3%
the major European shares are closing lower after giving up earlier gains. A look at the provisional closes shows:
- German DAX, -0.3%
- France’s CAC, -0.1%
- UK’s FTSE 100, -0.1%
- Spain’s Ibex, -0.5%
- Italy’s FTSE MIB, -0.5%
Looking at the benchmark 10 year yields, they are all moving higher, but less than the US counter part (the US 10 year yield is currently up 7.4 basis points at 1.282%).
The North American session has seen the dollar rise sharply and more recently give back back some of those gains. Nevertheless the greenback remains higher vs. all the major currencies on the day with the exception of the GBP. The JPY and CAD are the weakest of the major currencies.
Who is in charge here? Bonds or stocks?
It’s a big battle today as 10-year Treasury yields break the 1.20% January high and bust out quickly to 1.27%. It’s the same story across the long end with 30s breaking 2.00% and continuing to 2.07%.
The dollar was the first beneficiary and now equities are slumping. Leading the way are real-estate connected stocks and other rate-sensitive sectors. It all begs the question: is the bond market signaling rate hikes or a ‘return to normal’?
That’s a tough call at this point but any rock in the boat right now seems to send a few queasy bulls overboard.
I don’t think the paradigm changes until 2% in 10s, so long as the pace of the rise in yields is slow (call it 1 bps per day, on average).
How does it all net out?
So there’s 2 mbpd offline on the production side. But there’s around the same amount offline on the refining side.
So then it comes down to demand and you have more for heating oil but less for gasoline because people (hopefully) aren’t driving. Maybe not 2mbpd less for gasoline but inventories can certainly handle it.
Ultimately, this is probably good for oil but only marginally.
Financial Times reports on the matter
says that China is exploring potential export limitations to rare earth minerals that are crucial for the use of assembling US F-35 fighter jets as well as other advanced weaponry, citing people involved in a government consultation.
As mentioned before, even with Biden in charge, it doesn’t mean that US-China relations are going to be any better in the coming years – probably only less disorderly.