The oil market is navigating through a transformative period, driven by technological advancements, geopolitical dynamics, and environmental considerations. The push towards renewables and sustainable practices is reshaping the landscape of the energy industry, challenging traditional oil market players to adapt to these new realities.
We conducted an analysis of the relationship between the US Treasury 4-Week Yield and oil(WTI) prices. Our findings indicate a strong relation between the two variables, particularly when the 4-Week Yield experiences an increase of over 150 basis points within a 25-day period. Historical data reveals that whenever this condition has occurred in the past, oil prices have exhibited a decline ranging from 4.2% to 24.3% over the subsequent 40 days. This underscores the significance of the 4-Week Yield as a leading indicator for oil prices at times of US treasury market stress. It is worth noting that such occurrences have been relatively infrequent, transpiring primarily in the latter half of 2005 and throughout 2006. On 25/26 of these occasions, oil prices experienced a significant downward shift. As of May 22nd, 2023, the increase stands at 161 basis points. Consequently, we adopt a cautious stance regarding future oil prices until the US debt crisis is resolved and wait to see the investment and economic impact of the US debt crisis.
Does OPEC supply cut signal rising prices? We analysed the total production for OPEC+ and what oil prices (Brent) did in the next few days following an actual production drop. We found that in the 21st century every time total production changes drops by over 1 million barrels oil prices respond by anywhere between a 0 and 7 dollar increase in average price in the first 10 days. However this increase is tapered in the month and we found total production has little to no effect on oil prices. We therefore advise to be cautious in a 120-day horizon and expect a slight pop in average oil prices over the next 25 days. We only found two notable exceptions to thesis of oil prices rising in the first 10 days and those were in June 2022, and December 2022 in both cases oil prices dropped precipitously in the first 10 days due to economic uncertainty with rising interest rates and inflation.
Oil markets be wary of what the US Fed brings
