Americas News
The Buck, Not The Talks, is Driving What Will be a Short-Term Rally: Cantor Fitzgerald
Up until Friday, the expert consensus was that the current market rally was due to misplaced optimism over the Organization of the Petroleum Exporting Countries (OPEC) staging yet another round of freeze talks in September; but with Brent closing the week a penny lower at $50.88 and West Texas Intermediary settling up at $48.52, one analyst says that near term dollar weakness is largely responsible for the gains.
Peter Cecchini, chief market strategist for Cantor Fitzgerald, told Bloomberg that oil and equities generally trade in lockstep with each other, and that "the recent rally off the lows was frankly not as much about the talks that may occur in Algeria, but more about what happened to the dollar.
"If you look at the correlation of the dollar on oil….the dollar sold off pretty aggressively, and oil rallied pretty much in lockstep with what was going on with the dollar."
In looking ahead with this line of thinking, Cecchini voiced the familiar critical refrain about the impending OPEC talks: "we don't think [they] will make much of a difference"; conversely, he noted that from a fundamental supply perspective, Cantor Fitzgerald's near-term target for oil "is between $35 and $45."
He added, "The hope people had of a broad based energy rally will fade."
However, Cecchini suggested that oil in the $40s isn't necessarily a disaster, given that the real shock for producers was "when oil dropped from $60 to $40", and that to an extent they have adjusted operations to accommodate the lower figure.
Meanwhile, U.S. shale drillers are adding the most rigs since crude was trading at $100, reportedly in the hopes something tangible will emerge from Algeria: they have put 76 rigs back to work in the last 8 weeks, according to Baker Hughes Inc. data, and Capital One Southcoast thinks the total rig count could rise from the current 406 to nearly 600 over the next year.
While it was entirely predictable that the rig count would rise as oil hovered and at times surpassed the $50 threshold this week, the enthusiasm exhibited by U.S. producers would presumably worry the majority of analysts who insist that the September talks will go the failed way of the previous two freeze talks staged by OPEC.
Citibank summarized the overall worry succinctly earlier last week, when it told CNBC that "OPEC cooperation hopes should be treated with caution, as this is shaky ground to base a bull rally on."
