Tuesday, December 15, 2015

It's a Crude World

The market is hanging on with baited breath waiting for every move in WTI.  You saw crude bottom in pre market yesterday and continued crude oil strength provided the support that the market needed to make an intraday reversal and finish near the highs.  Now with the Fed announcement just one day away, you are getting some optimism coming back as the Pavlovian response to buy on Fed days comes back to the market.

Everyone knows that the Fed will raise rates, but it still makes them nervous, just because it hasn't happened in such a long time.  Let's not forget that the UK has interest rates at 0.50%, so it doesn't mean the end of the world for that economy.  In fact, the UK is probably one of the strongest economies in Europe.

And pretty much everyone knows that the Fed will be excruciatingly reluctant to raise rates any further after tomorrow if oil stays below $50/barrel.  The benchmark, Brent crude is only trading at a slight premium to WTI, so year over year, the cost for gasoline and heating oil are much less.  That is going keep the inflation numbers low.
Crude oil usually bottoms in December, but it doesn't really start making a strong move higher till February, so there is lots of room here for crude oil to linger in the 30s, which is a horrible scenario for the energy names.  I am bullish on the market overall for the next few weeks, as the tax loss selling will be over and we'll have some new yearly inflows coming in at the beginning of January.

We need oil to get to at least $45/barrel to have a good chance to make new highs.  That is asking a lot for such a weak market.  So it is a time to be bullish, but the weakness in oil will prevent this market from breaking out strongly to the upside.

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