Risk assets and commodities in general are doing well today so that's a portion of the $3 gain in crude today but it's certainly not the whole story. WTI crude oil is up 3.9% to $77.64 in its best day in six weeks.
What's driving it?
- The Israel assassination of the Hamas political leader in Tehran along with a Hezbollah commander in Beirut is stoking fears about retaliation and an escalation. We've seen this theme play out many times in the past 10 months and the trade has always been to fade the oil rally, but maybe this time is different.
- There are conflicting reports but Maduro seems to have the support of the military in Venezuela. If he can hang onto power, expect the US to punish the country with harsher oil sanctions, which could remove supply. To be sure, risks are two-way because there could be an uprising but for now I see it as bullish.
- The US EIA monthly report today showed output fell 61k bpd in May in the first decline since January. The lower production number highlights the stall in US drilling that will be underscored by recent falling prices. US producers will struggle to add barrels from here due to high decline rates and dwindling Tier 1 inventory.
- Weekly US oil inventory data was moderate bullish.
Those factors have helped to offset disappointing China PMIs, though hope springs eternal that China will open the stimulus taps.
The crude chart shows a potential three-candle reversal, particularly on a close above $77.69 but I'm highly skeptical of buying a geopolitical-driven pop.
WTI daily
