Intraday Market Thoughts

Oil in the Eye of the Hurricane

by Adam Button
Aug 26, 2020 14:01

Markets are not totally inactive ahead of Thursday's speech from Fed chair Powell as all eyes (especially oil) turn to Hurricane Laura. In the span of a few months, oil went from the world's most-volatile commodity to its least but the winds of change are blowing with Hurricane Laura bearing down on the US. More below.  US durable goods orders jumped by 11% in July, beating expectations, following Tuesday's disappointing consumer confidence survey. A new Premium trade was issued moments ago, backed by 3 charts & 5 key notes. Members of the WhatsApp Broadcast Group were alerted right after today's London open. 

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Oil in the Eye of the Hurricane - Brent Aug 26 2020 (Chart 1)

The winds of Hurricane Laura continue to strengthen as it crosses the warm waters of the gulf of Mexico and along with it, oil is strengthening. That led to the highest close in WTI on Tuesday since the pandemic and also left Brent just shy of the 200-dma. Laura is gaining in strength and appraoching to be a "catastrophic" Category 4 storm. More than half a million people were ordered to evacuate in Texas and Louisiana.

Most offshore production is shut down and the storm is headed right for the heart of US refining country in Beaumont, Texas.

The problem for oil bulls is that a storm does nothing to change the overall fundamental picture. There's still 10m barrels of spare OPEC capacity and the latest mobility numbers in Europe are turning lower as the pandemic picks up.

With that, it's dangerous to see a short-term storm-inspired breakout as a the underpinning of a larger rally. At the same time, commodities everywhere have been strong as the US dollar slides and economies recover.

At times, the Canadian dollar has acted as a good leading indicator for oil and it's back to pre-pandemic levels. This is already the most-hated rally in history, why not add an oil chapter?

In terms of the broader risk trade, a big miss in August US consumer confidence did nothing to dent market confidence, especially ahead of Powell's speech on Thursday due 9:10 Eastern time (14:10 London, 17:10 Dubai).



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