Talking Points:
Blame the Americans. Specifically, the American shale oil producers for the recent breakdown in Oil prices. During CERAWeek in Houston, billionaire shale oilman, Harold Hamm said we could see the U.S. industry “kill” the oil market. Hamm sent a warning out that if shale producers in North America aggressively boost production, which is now available at lower costs, as OPEC cuts back in an orderly fashion to balance the market, the oversupply would flood the market and bring the prices aggressively lower.
The breakdown in Oil price in early March has traveled more than 10% lower to the 200-DMA at $48.66/bbl Friday’s Baker Hughes Rig Count will be watched for the likely eighth weekly rise in active Oil rigs in the US. The surge higher has been very aggressive in US active rigs as we’ve seen a doubling in active rigs since last June. As active rigs in the US have risen, so have stockpiles, per the EIA, the week ended March 3 saw U.S. crude stockpiles rise by 8.21 million barrels to 528.4 million barrels, which was the ninth week of rising US Energy stocks.
Another appropriate concern for Oil Bulls is whether the DXY strength continues. For much of the breakdown in Crude from H2 2014-Q1 2016, we saw a nice correlation that recently has broken down. Should the correlation pick back up, we could see a stubborn USD, more on that later, act as a drag on Oil again (hat tip James Brodie, CMT).
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Gold is falling too, but with less fanfare than Oil. On Thursday, Gold traded at its lowest level in five weeks on the back of impressive U.S. private jobs, which pushed down the price of Treasuries that lifted yields and further pushed the implied probability of a Federal Reserve Rate hike on March 15 to 100%.
