Oil bulls are gaining the upper hand

It’s Joe Biden against the oil bulls, and oil bulls seem to be gaining the upper hand as oil prices rebounded the day Joe Biden announced to release not 35 but 50 million barrels from the US strategic reserves. This is the biggest amount released from these strategic reserves in the US history, but helas, the barrel of US crude is already up and flirting with the $80 level, and there is little left to be priced on the bearish side, as other big oil consumers like Indian and China announced they will be joining the US effort as well.  

China announced it will release some 7 billion barrels, India 5 million barrels, South Korea didn’t specify a volume, and Japan said it will be releasing several DAYS of volume. Several days!  

Obviously, such news doesn’t necessarily scare OPEC, but it probably frustrates them. The expectation is that they will hit back at their meeting next week, and their decision will have an impact longer than a couple of days or weeks. This is probably why we are seeing the oil bulls coming back to the market, and yes, there is a chance now that we see the $80 offers cleared and a push above that level into next week’s OPEC meeting. The only thing that Joe could do at this point is to pray for OPEC to not hit back too strong, because if they decided to cut supply for a couple of weeks, Joe’s oil reserves would be very quickly down.  

On a side note, it is also said that the US could do much more than this in terms of oil output, but engaging on a bloody oil war is not the best strategy to bring and to keep oil prices at affordable levels.  

On other energy news, the Arctic blast brings snow to Europe and the cold weather brings along higher energy prices. Coal futures are surging, and the natural gas futures could start doing so as well, given that problems on the Ukrainian border somehow gets the relationship between Europe and Russia tense, and Russia was supposed to get a historic amount of natural gas to Europe to help taming the soaring nat gas prices.

Popcorn prices in Saudi are exploding as they are rushing on popcorns to watch the… snow show! 

Overall, the market sentiment is mixed. Nasdaq is down from an all-time high, as the US short term yields continue pushing higher. The bond traders have been cutting their projections on US inflation as they expect the new Fed Chair Jerome Powell to move aggressively to slow rising consumer prices, as Powell hasn’t been the one downplayingthe rising inflation for months. Therefore, all this aggressive pricing has no reason to be, unless if it’s really for inflation and the fact that the Federal Reserve (Fed) has no choice but to fasten up the QE taper, and to raise rates earlier and faster.  

Speaking of raising rates, the Reserve Bank of New Zealand (RBNZ) rose its policy rate by another 25bp to 0.75% at today’s meeting as expected, and as expected the move didn’t help the kiwi stay above the 70 cents levels against the US dollar. The hawkish pricing in the US dollar is what drives the pair right now. Due today, a better than expected US growth number could further boost the USD bulls.

In Europe, yesterday’s PMI figures showed price pressures continued to rise for business. (No, really?) Despite strong headline figures, the outlook looks far from optimistic with new lockdown measures in play. Some European Central Bank (ECB) officials are getting tense with the rising price pressures in Europe, especially in Germany and Netherlands which don’t necessarily watch the soaring inflation with a light heart. But the market continues pricing in a dovish ECB. At this point, I am wondering whether the dovishness in the euro is overdone, as Christine Lagarde will likely start facing some opposition to her ultra-dovish stance if inflation in the Eurozone doesn’t ease magically in the coming months. And magic is not something the Germans rely on.