Weekly Market Recap

Oil market rebalancing

15/02/2021

Week in review

Australian business confidence higher in January
Australia consumer confidence rises in January
U.S. CPI inflation rate soften than expected at 1.4% y/y

Week ahead

U.S. retail sales
Australian employment report
Australia preliminary retail sales

Thought of the week

The price of Brent crude rose to its highest level in a year last week, breaking above US$60/bbl. The expected pickup in economic momentum over 2021 is helping to lift the price of oil but the real driver was unexpected production curbs by Saudi Arabia. Saudi Arabia agreed to cut production by an additional one million barrels per day in February and March. Inventory levels in the U.S. are also declining, assisting in rebalancing the oil market (see chart). In the short term the oil market is most relevant for the inflation outlook as the year-on-year comparisons will soon start to impact headline rates of inflation. Longer term the focus of the oil market will be on climate change and emission targets. The U.S. has rejoined the Paris climate accord as a first step towards net-zero carbon emissions by 2050. This will require a massive shift towards electrification through renewable energy as well as significant investment in climate related infrastructure to support it.

U.S. crude oil inventories and rig count

Source: Baker Hughes, FactSet, U.S. Department of Energy, J.P. Morgan Asset Management. Data reflect most recently available as of 10/02/21.
All returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.

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