How Long Can Oil Keep Rising?

Negative headlines kept hitting oil on Tuesday but prices kept rising until a devastating US supply report finally broke the market. The other main story in the market was the continued climb of the US dollar after the jobs report. The BOJ decision is later. A new set of Premium Insights will be issued on wednesday. EURCAD and CADJPY have been stopped out.

It's rare to find a true oil bull these days. Every view on the market points to the same thing – oversupply. Yet prices are holding the line.

In a weaker market, the headlines would have broken the bulls. There were four reasons to sell Tuesday  1) Goldman Sachs was doing the rounds touting another bearish take. 2) The EIA released a report that highlighted more than 30 million barrels of oil in storage in Iran and 700,000 bpd of untapped capacity. 3) The Saudi oil minister said March production was at 10.3 mbpd, a record. 4) The US dollar was stronger.

Instead the market ignored Goldman, focused on slightly lower US oil supply growth forecasts from the EIA, and ignored the actual Saudi numbers in favour of Saudi jawboning on prices and hollow talk about cutting production (but only if other countries do to).

WTI climbed to $54, almost matching the February highs in what looked like it could be a breakout. But the technicals were the signal to sell, at least temporarily, as a more than 12 million barrel build in API weekly supply data sent prices $1 lower late in the day.

The danger is that he supply story is priced in. It's tough to imagine where all the oil will go with storage capacity filling up but price action is the ultimate deciding factor and crude refuses to make another leg lower. The day ahead features the official US supply data and expectations will have moved sharply higher than the 3.2m barrel consensus after the API data.

In FX, the US dollar continues to rebound and momentum is building. Traders may be anticipating hawkish (or at least optimistic) FOMC minutes on Wednesday. The meeting was before the latest round of soft data that included nonfarm payrolls and that probably means it doesn't reflect the current views of the Fed and it could signal a (now-dated) inclination toward a June hike.

Up next is the BOJ decision, which will be released in the 0230-0330 GMT range. Expectations are extremely low for a cut but there another meeting in three weeks time and that is a more 'live' decision. If anything, there could be some subtle hints at more easing later.