Void of any major economic news from Europe or the United States, the dollar rose further first thing this morning while stocks came under some pressure. As the session wore on though, the dollar eased back a little against safe-haven currencies while European equities remained under pressure, undermined by a growing sell-off in Italian bond markets. This has been in response to Italy’s populist parties reaching a deal to govern the country together, which has raised concerns about the nation’s future in the Eurozone.
Come join the bull oil party. The room was empty a few years ago but now everybody is jumping on the dance floor. Crude oil is a boom and bust market. Two years ago, we went bust and since then we are in a boom shakalaka. Oil prices closed steady after giving up gains as the June option expiration pressured prices, only to have them stay strong based on the crude realities of strong global demand and tightening supply.
Geopolitics has taken over the oil market, driving oil prices up to three-year highs. The inventory surplus has vanished, and more outages could push oil prices up even higher. Yet, there are some signs that demand is starting to take a hit as oil closes in on $80 per barrel.
The International Energy Agency (IEA), or as I call them the “demand downers,” once again are raising concerns about global oil demand. The agency that has consistently underestimated global oil demand is once again trying to keep their weak demand illusions in the spotlight. A few years ago, it was because that despite the low price, demand would be bad despite clear evidence to the contrary.
Looking for fear in the oil market? Look no further than the Brent versus West Texas Intermediate oil spread that blew out to the highest level all year and the highest since 2015, with Brent holding a $7.30 per barrel premium currently above WTI. European and Asian buyers of Brent are pricing in the risks and realities of the fallout from sanctions on Iran to increased tensions in the Gaza strip as well as the inability of traditional Brent oil producers to fill that void.