Brent oil rampaged 5% higher Friday after the perfect US jobs report to finish at $38.93. Even Henry Hub managed a small gain to $1.67mmBtu:
Everything is massively overbought so we may see a pull back in the near term but, equally, oil appears off the leash as the OPEC non-deal, good US petrol consumption and falling US shale activity have turned the psychology of the market. It may be that one of them is going to have to break before the rally really reverses. The OPEC non-deal is a movable feast packed with jawboning so that is very difficult to predict. Iran could upset it by over-delivering but the market is so strong that that might be absorbed by solid US growth anyway. That leaves a renewed shale response as the most likely candidate for capping the rally and we’re going to need to see shale activity at least bottom out and possibly even to begin to grow again in a repeat of the big turnaround of early 2015. Having said that, given the correlations in all commodities, if the complex rolls over then so might oil. It’s a wild environment.
On the US shale front the rig count fell again last week by eight to 392 so we’re not there yet. Indeed, if a retest of shale’s response time is in the offing then WTI may need to get well above $40 meaning Brent closer to $50 to switch it back on (last year it was $60).
