WEEK AHEAD: FEBRUARY 15

Short Description

Brent crude oil has reached over $60 per barrel, having recovered its entire covid-related steep decline last year. I talk about whether there more gains to come or if the oil market has reached a top. I also rundown the economic calendar. Thanks! Rich

Video Script

Can Brent crude oil keep rising past $60 per barrel? - THE WEEK AHEAD (Feb 15-20, 2020)
    
Hi everyone, there have been some monumental market moves recently with Bitcoin up near $50,000, the Nikkei index at 30-year highs and the DAX 30 index breaking out to a record high. But my focus in the coming week will be on crude oil which saw huge gains in the last several days. Brent futures just topped $60 per barrel so I’ll give my take on whether price can keep moving up from here or whether we’re close to a top. And of course, I’ll also rundown this week’s economic calendar.

So again, Brent crude oil futures just struck $60 per barrel for the first time in over a year. That means it has fully erased the covid-19 declines of February and March last year. A trendline connecting the 2008, 2016 and 2020 lows would suggest we’ve made a long-term bottom in crude oil. The risk as I see it is more short-term because the price is now overbought on a daily chart. Keep in mind, the oil price has tripled since the March 2020 low. The next major resistance is at the January 2020 high near $70, while support is back at $55 in the middle of the January price range.

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Right let’s run through the economic calendar quickly and then I’ll talk more about the fundamentals for oil. It will be a slow start to the week thanks to the Lunar New Year where multiple Asian stock markets will be closed and it’s also Presidents Day in the United States. Data-wise, on Monday there is industrial production stats from Japan and the Eurozone. On Tuesday there is RBA minutes, trade balance data from China, Eurozone Q4 GDP and the German ZEW survey for February. Wednesday there is UK CPI data then US retail sales and later Fed minutes. Thursday there is Australian unemployment and then ECB minutes. Then we round off the week with UK retail sales and updates to global PMI data for February. 

So even though many economies remain in lockdown and oil demand is supressed, the price of oil has been rocketing higher as part of the ‘reflation trade’. I’ve mentioned this on a few occasions- it’s the idea that the vaccine rollout will enable the economy to recover and for inflation to pick-up as a result. And oil is not the only commodity that’s been rising. Industrial metals like copper and iron ore have been rising in what many are describing as a new multi-year commodity super-cycle, bolstered by demand from China- the biggest consumer of commodities.

The biggest risk for oil is the continued push for alternative non-fossil fuel energy sources. In the longer-term that means less demand and potentially lower prices. In the short term though, things are little different because big oil companies are investing less in new oil exploration, Shale companies in the United States were hit hard during the pandemic and OPEC is capping its production. That shortage of supply relative to the expected demand pickup is good for the oil price. The question we now need to ask is whether that supply-demand imbalance is already priced in at $60 per barrel.

Right thanks everyone, good luck trading this week and make sure to subscribe so you don’t miss the next episode of the Week Ahead.