Oil inter-market: Out of sync with intrinsics, output freeze talks underpin

Oil prices have been on a rising trend so far this Monday, extending last week’s upbeat momentum into a brand new week, as traders largely ignored broad based US dollar rally backed by stronger US payrolls data.

The latest move higher in the black gold appears solely on the back of renewed output freeze talks fuelled by some of the OPEC members as well as by Russia. Russia’s Novak noted Monday that they may need to discuss freezing oil prices if oil prices decline.

Moreover, comments from OPEC’s president delivered earlier on the day, further added to the optimism surrounding the oil prices. The OPEC President and Qatari energy minister Mohammed Al Sada noted, “Expectation of higher crude oil demand in the third and fourth quarters of 2016, coupled with decrease in availability, is leading the analysts to conclude that the current bear market is only temporary and oil price would increase during later part of 2016.”

Meanwhile, it can be observed that none of the intrinsics justify today’s rally in oil. As mentioned earlier, the black gold ignored the post NFP upside consolidation in the US dollar across board, while the US equities correct lower after Friday’s strong gains. Moreover, VIX (CBOE volatility index) bounces +1.58% from fresh multi-month troughs, suggesting risk-off trades, which the oil markets seem to ignore.

Focus now shifts towards the weekly supply report from the API and EIA due later this week, in a bid to gauge the supply situation and hence, its impact on the prices.