Crude prices fell 5% as traders sold-the-fact on a 9-month supply cut extension. The US dollar was the top performer while the Australian dollar lagged. Japanese CPI is due up next.
Management is the art of communication and that extends to market management as well. A month ago, a nine-month extension of OPEC/non-OPEC supply cuts would have been a welcome surprise in the energy market.
Instead, stories began to circulate about a six-month extension. That was followed by talk of a nine-month extension and it was eventually capped off by speculation about a 12-month extension or deeper cuts. By the time today’s nine-month extension was announced it underwhelmed and WTI crude fell to $48.80 from $52.00. Brent had a similar 5% fall.
The challenge now is to separate the disappointment trade from the fundamentals. At current levels, oil is well below the Dec-Feb range and is nearing the March bottom at $47-48. It’s still far above May’s $44.00 low.
An offshoot of the oil trade is USD/CAD. That pair rose 65 pips on Thursday but that’s less than the bulls would have hoped given the 100 pip drop the day before. You have to wonder if CAD has been hit by so much bad news – and with such a massive net short – that there is no fuel left for the bears.
Switching gears, the week winds down for Asia-Pacific traders with a Japanese CPI as the main highlight. The April numbers are due at 2330 GMT and expected to be up 0.4% year-over-year but flat excluding fresh food and energy.
Another event to watch is a speech from the Fed’s Bullard at 0200 GMT. He’s said previously that he doesn’t think another hike is necessary but wouldn’t be opposed to one more.
Finally, the RBA’s Richards is in a panel presentation at 0430 GMT.
