Brent Oil is trading higher once more this morning with the crude benchmark on course for its best monthly gain since May 2009. The 22% rise so far in April has seen the market move back above the $48 handle for the first time since early November and even the lack of an agreement on a production freeze between OPEC and non-OPEC has failed to halt the recent rally in its tracks.
Oil bulls regain control
Following an eighteen month decline in the oil price which culminated in a 13-year low just above $27 a barrel for Brent in January, the market has recovered remarkably well and currently resides over 75% higher than this trough. Little has changed fundamentally for crude in April with US inventories continuing to rise and the surge higher this month seems to be driven more by the unwinding of oversold conditions and short positioning rather than a tangible reduction in supply. This rationale gained more credence following the reaction in price to the collapse of talks in Doha to curb output, as the immediate move lower proved to be nothing more than a bear trap and illustrates that the rally heading into the meeting wasn’t being driven by expectations of an agreement. The bid we’ve observed of late has been ably assisted by a depreciation in the US dollar which makes all commodities denominated by the greenback relatively cheaper for countries other than the US.
US Dollar hits lowest level since June
The US dollar dropped once more this morning, trading at its lowest level against the yen in 18 months whilst the GBPUSD touched 1.4665 to post a fresh high for the past ten weeks. Despite a slightly hawkish shift in the rhetoric used by the FOMC on Wednesday evening, the buck has continued its descent on a trade weighted basis driven in part by external shocks such as the rapid appreciation in the Yen following the absence of further stimulus from the Bank of Japan. Inflation data out this afternoon from the US may provide a lifeline for the currency, although having said that the divergence in monetary policy between the Fed and other major central banks has noticeably narrowed of late causing a pause, and potentially a reversal for the US dollar bull run.
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