Crude oil prices continue to rebound as the market is gaining more confidence that the Eurozone can pull itself out of its deflationary downward spiral. Brent crude went above $60 a barrel for the first time this year and WTI back above $52.
Not only are there comments by Angela Merkel that Germany is willing to compromise on Greece because it is better than the alternative, but strong data is coming out of Germany as well. The German GDP exceeded expectations coming in at 0.7% in the final three months, more than twice as fast as anticipated. It helped lift the entire Eurozone into a growth rate of 0.3%. On top of that, the "roadmap to peace" in the Ukraine is offering hopes that further economic santions will not be placed on Russia, which should help inspire more growth in Europe! Russia already has been moving oil freely so it won't really add to supply.
The euro currency has also responded and its strength is giving many battered down commodities the chance to bottom. Not only is oil's rebound catching many by surprise, but copper grains and perhaps even precious metals may be getting ready to change their recent downside leanings. With all of the stimulus put out in Europe it is possible that commodities are bottoming.
Oil products also have other issues. RBOB gasoline futures and ultralow sulfur diesel started to make big moves. Cold temperatures may have inspired some heating oil demand buying and the ongoing refinery strike is threating to impact output. Distillate supply, according to the Energy Information Administration, is in the lower half of the average range for this time of year. The ongoing refinery strike is also giving us support! Royal Dutch Shell, which is representing the refineries and the Union, indicated it won't return to talks until Feb. 18.
Rig counts also continue to fall as Apache cut its drilling rigs by a stunning 70%. For all the talk that rig counts won't impact output the truth is it will slow longer-term production growth. Bloomberg reported that "While companies have idled 151 rigs in five shale formations since reaching a peak of 1,157 in October, they'll need to park another 200 for growth to stall, according to data from the U.S. Energy Information Administration. Output there will reach a record 5.468 million barrels a day in March even though the number of rigs exploring for oil is the lowest since 2013." Yet while that is true the lack of new rigs will eventually slow the meteoric rise of the U.S. producer and we will soon level off and unless we see a price rebound inevitably sink back into decline. That is why oil is bottoming.
Reuters reported that French energy major Total (TOTF.PA) on Thursday became the latest to announce investment and job cuts following a near-halving of oil prices since June. The chief executive of Shell warned that supply might not be able to keep up with growing demand as companies slash budgets. Shell's CEO had a more bullish take on supply and demand and the weaker dollar also helped support crude.
We called the $44 dollar low after being bearish on the way down.