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  • Hello and welcome back to the Note.

  • Slower day on markets today, the S&P here in the U.S. finished, down for the day,

  • and we had a negative reaction to earnings from Google and Microsoft after the bell,

  • so there's every risk that that'll continue to into the morning.

  • One thing that is very intriguing, however, was that oil continued its advance,

  • and that's really very surprising if you remember the headlines from the weekend.

  • Now if we take a look at this first chart,

  • this shows you what has happened since trading opened in Asia on Sunday night.

  • And you can see that there was an immediate reaction to what appeared to be very bad news, if you wanted oil to go up,

  • that's the OPEC countries had failed to agree on a production freeze that should've, you would have thought, pushed the oil price down,

  • instead, as you can see, there has been a well sustained rally upwards in the oil price.

  • Now if we look at this in a longer term perspective,

  • you can see, yes, we're still a long way down from where we were about two years ago,

  • but the oil price is now actually back up to roughly where it was early last year,

  • and after testing that 200-day moving average, that big measure of the long term trend, it does appear to have confirmed itself above that long term trend.

  • This bounce that we have seen in the last few weeks adds up from a trough to a peak, to almost 70% gain in oil, quite remarkable.

  • Now, what is even more remarkable, is that this has been achieved despite the news we had from Doha last weekend.

  • And if we now take a look at U.S. Crude Total Inventories, admittedly this number has a lag,

  • but the inventory continues to rise very sharply indeed, in fact its one of the highest numbers on record,

  • you would think that would be bad for the oil price.

  • However, the inventory is at least not rising as fast as it can do at this time of year.

  • And if we now take a look at production numbers for the U.S., you can see that they have begun to decline.

  • Again, this number is produced with a lag,

  • many people are able to assess rig counts and so on to take a guess as to where production is moving,

  • and so there is a strong belief in the market that fundamentals are moving in favor of the oil price,

  • that this will... that we are going to see production steadily decline from here and inventories come down from here.

  • If we do, then the sentiment, which has plainly changed, will be confirmed.

  • Obviously things will get a little uglier in the oil market if the fundamentals don't confirm this very striking change in sentiment.

Hello and welcome back to the Note.

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