How do you say “fade the rally” in Russian?
Last week, and to a lesser extent Wednesday morning, oil prices jumped on reports from Russia about that country’s willingness to cooperate with other exporters to curb crude output. There are just two problems with such talk underpinning a lasting recovery: supply and demand.
Consider what transpired last week: Supply was the issue as leaders of the Organization of the Petroleum Exporting Countries quickly quashed the notion that they would agree to cuts with nonmember Russia to get the oil-price ball rolling upward again.
The sticking point, complicated by regional conflicts and the Sunni-Shiite friction in the Middle East, is that Iran is intent on sharply raising exports now that nuclear sanctions have been lifted. Saudi Arabia, meanwhile, is in no mood to give up market share, especially to its longtime rival.
This week, and especially on Tuesday afternoon and Wednesday morning, the issue was demand. Data from the American Petroleum Institute and the U.S. Energy Information Administration showed the top global energy consumer building inventory more rapidly than expected.
The 7.8-million-barrel jump in the EIA’s figure was more than double the 3.5 million average expectation in a Wall Street Journal survey. Plus, it put total U.S. inventories above 500 million barrels. That is the highest for this time of year in the survey’s eight-decade history.
Politics plays a meaningful role in the oil-price drama, so rumors and even actual meetings among oil-producing countries will continue to keep bearish energy traders on their toes. But more powerful and longer-lasting fundamentals still appear to be in their favor.