US oil supply still slow to catch up

Oil prices heading even higher?

Chart of the Day

One of the big events lately has been the further rise in oil prices, with the US grade WTI now above $75. Despite higher prices, the US rig count has been extremely slow to catch up - and the pace of recovery has slowed lately. This seems to be because, faced with the damage to their income when oil prices plunged last year and continued uncertainty about whether Covid restrictions might come back, oil producers are prioritizing cleaning up their balance sheets. This could be a sign that oil prices will head higher still, although that will depend on whether OPEC soon agrees to a new production schedule or not.

Macro

UK GDP rose by 0.7% MoM in May, which left GDP 24.5% higher than a year earlier but still below the pre-Covid rate.

Canada released jobs numbers on Friday, showing the labor market recovery has been choppier than in the US but faster nonetheless.

A look abroad shows that high inflation is still mainly a US development - in Norway core inflation has fallen sharply lately.

Markets

Traders increased their net short in 30-year bonds again last week, a sign that the fall in yields is close to a trough perhaps?

Traders still have a near neutral position in the USD.

The US equity indices have been outperforming lately again.

That’s thanks to very strong gains in growth stocks.

Tech stocks are no longer being driven only by lower real interest rates.

The ratio of the Russell 2000 of small-cap shares to the Nasdaq remains much weaker than before the pandemic and seems to pour cold water on the idea that a new approach to fiscal policy will help distribute income and wealth, benefitting smaller firms at the expense of larger ones, which was the theme following the US election.

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