This was a great week for the price of oil, marked by two major occurrences that allowed a bull rally. As of Thursday, West Texas Intermediate (WTI) had gained 11.15% over the last five days of trading. Obviously, the large inventory draw (see By The Numbers) helped. But the two major occurrences were the rumor mill of production freeze and a weakening U.S. Dollar.
The Federal Reserve’s Open Market Committee had their meeting this week and there appears to be considerable disagreement over whether or not the Fed should raise interest rates. In light of recent a recent weak jobs report, and awaiting evidence that U.S. inflation is now under control at the preferred level of 2% per year, several members of the committee argued against raising rates, while several members argued for an immediate raise in rates. Either way, this allowed some softening of the U.S. dollar, which is obviously good for oil.
The other major impact this week was our headline article about the potential for a production freeze from OPEC + Russia. This news immediately sent oil higher and demonstrates the impact mere words from people can have. As I said in my article about it this week, OPEC has little incentive to freeze production. These comments come as Saudi Arabia boosted crude exports to a three-month high in June and production climbed to record levels in July. Saudi simultaneously cut pricing to Asia. It strikes me as incredibly improbable that a deal will be reached. But there may be a glimmer of hope. All OPEC members want to see the market return to balance. Assuming production cuts are completely off the table, a production freeze might make some sense. But the remarkable thing is how much markets reacted on what were, effectively, just some comments. It might indicate that more people are starting to go bullish on oil overall.
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