Bond-driven risk aversion dominated broader markets on Wednesday but crude shrugged it off on optimism that OPEC+ will rollover cuts. The US dollar as the top performer while the kiwi lagged. Comments from Powell are key in the day ahead.
The OPEC+ meeting on Thursday will no-doubt feature some back-slapping from oil ministers. Their efforts have gone a long ways towards boosting brent to $65 from unheard of depths. A particularly successful move was the decision to rollover output in January combined with a 1 mbpd voluntary cut from Saudi Arabia.
There’s the rub. Those barrels will have to come back into the market at some point and if they tip the balance too far, it could undo some of the progress.
It’s a classic battle between greed and fear. Many nations no doubt want to take advantage of higher prices to sell more oil while all of them want to keep prices high. So far, they will be please to continue to see global oil companies keeping budgets tight. A red flag would be if US shale or others begin to drill with the aim of boosting production.
Market talk centered around a 500kbpd hike in April and a return of the 1 mbpd from Saudi Arabia but that was turned on its head Friday on a report from Reuters saying OPEC+ is considering rolling over current production. That helped to boost oil prices by 2% Wednesday even as broader markets wilted.
It’s not clear whether Saudi Arabia would continue its voluntary cuts but even if they return, the rollover of OPEC+ overall production would be well-received.
The decision takes place at the same time as the market continues to struggle with higher yields. The Fed’s Evans brushed of higher rates Wednesday, saying it was a reflection of better economic sentiment. There was a rumor though that Powell in his 1705 GMT speech Thursday could hint at an operation twist. Given the comments from other top officials, we doubt he will. We fear though that if he doesn’t the bond market will kick and scream.
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