Trying to make sense of any price action based on an event, or earnings or Macro perception of what "SHOULD" happen has always been an exercise in futility. Too often prices discount a certain event and much depends not only on public perception of what should occur, but what the market is looking forward to in the future. If an action is largely anticipated, and indeed lives up to that expectation, why do prices tend to reverse so dramatically more times than not, leaving most scratching their heads?
Crude oil is in focus today obviously which was widely anticipated to move LOWER after the failed Doha meeting to produce any Output freeze. Yet how many times has experience proven that when all sides are leaning on one side of the boat and have the facts all figured out.. it's usually smarter to go the other way? Fundamentally the supply issues remain bearish, and despite a few minor inventory draws, these haven't done much to reduce the expectation of continuing supply. The prospects of a Freeze were always dubious to say the least and Saudi Arabia was never expected to do much, even in the form of a Gentlemen's Agreement, without Iran, particularly when no means for enforcement were in place. Sentiment wise we know that it was public knowledge that even in the event that a freeze WERE put in place, this would have relatively no impact on Supply. Yet the market maintained a fairly robust bid into this past weekend, and then after dropping 2% after the close on Friday and an additional 6% as trading opened late Sunday night, it managed to regain practically all of these losses , for virtually no other reason outside of the Kuwait Strike which could take 1.5-1.9 million barrels of oil off the market. Additionally we could chalk up the rally to the fact that many expected Crude might fall precipitously when this had already been baked into the market.
Bottom line, the market tends to discount news very quickly and is always forward looking- (Given that fact that 18 Oil producing nations were collected on short notice and met for over 12 hours, there seemed to be some incentive to get something done. Even though it did NOT happen over the weekend, Iran seemed far more conciliatory to the prospects of a Freeze, yet would only be willing to move if/when Sanctions are completely lifted, and would never freeze prior to this happening at January levels. Additionally,, Saudi Arabia also seemed intent on delivering some news of this sort until a last minute scuttling of the deal when Prince Salman called Ali Al-Naimi, and caused this not to happen.
The following factors are bullish, and argue for continued gains:
1) Technically, crude remains bullish near-term. Momentum is positively sloped, upward sloping, prices aren't dramatically overbought and WTI Crude has recently broken out above longer-term trendline resistance which has been in place since last year
2) Iran's openness to do something vs its stance a few months ago is a positive for a Freeze
3) Given a 12 hour meeting where nothing concrete was done, how many more OPEC meetings can happen without this being a source of embarrassment, where at least something in principle happens, regardless if its enforceable or not
Bearish factors include seasonality in the months ahead, ongoing supply issues where production on long-term charts looks to steadily increase, and the lack of enforcement of any action even if agreed upon, where most might rush to pump ahead of next month, thinking that something at that time might occur and they have one month to prepare
Bottom line, until there is ample evidence of crude peaking out, it remains tough to be a bear and think that Oil is peaking out- 2 charts below help to explain this thinking- the hourly shows the attempted breakdown last night, which looks to have failed and now the snapback which makes Crude a lot more positive
Daily charts show the ongoing positive pattern of higher highs and higher lows with a recent breakout above this long-term downtrend- A move to the mid-to high 40s still looks likely into May
SPX right below key HIGHS from last year and near the mild uptrendline connecting these prior peaks which hits right near 2090-5- If crude oil continues to strengthen, there's no reason why this area won't be exceeded as industrials, financials, energy, discretionary and Healthcare all begin to accelerate