WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world’s biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees "lower for longer" suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed.
Following the 2nd biggest week in crude since January 2009...
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WTI Crude broke above $50 for the first time since July...
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“The stocks have been oversold over the past year and that’s helping the rally now,”Jason Kenney, European head of oil and gas equity research at Banco Santander SA, said by phone from Edinburgh. “Question is where will oil prices settle now? Investors think oil companies can weather the storm because they’ve got so many levers to pull.”
However, Credit markets remain notably unimpressed (and given their focus on cashflows, we suspect at this level of risk, they are less momo and more fundamentally driven)...
Oil may rise to a “baseline” of about $60 a barrel in one year’s time as the impact of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president at Pimco, said in an e-mail. U.S. crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June.
Still, companies remain cautious after a rally earlier this year was shortlived. While production cuts may help draw a line under the rout, prices are set to remain “lower for longer” because of excess inventories, according to Pimco, which manages $15 billion of commodity assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.
“People could be thinking, how much worse can it get from here, so there’s a rotation from short positions to long,” Michael Powell, a managing director of investment banking at Barclays Plc, said in London this week. “Then you ask, is this the spring of this year all over again?”
Charts: Bloomberg
