Investing.com - Are the stars really aligning for oil bulls?
Oil prices rose for a sixth-straight day on Friday, rallying as much as 4% in early trading before settling off the highs. The market gained 3.7% in its first week of 2019 and a whopping 12% from the 18-month lows of $42.36 for U.S. crude on Christmas Eve.
In the latest session, U.S. West Texas Intermediate crude settled up 87 cents, or 1.2%, at $47.09 per barrel, after reaching a three-week high of $49.22 in intraday trade.
Brent, the global crude benchmark, was up by $1.23, or 2.2%, at $57.18 per barrel by 2:55 PM ET (19:55 GMT), after rallying to $58.30 earlier.
The run-up came as stocks on Wall Street surged on Fed Chairman Jerome Powell's indication that he will be patient with future rate hikes, just as President Donald Trump has been hoping the central bank would. Powell made his remarks after a sterling U.S. jobs report for December.
Also pushing the market higher was China's affirmation that it will come to the table again next Monday for high-level talks with U.S. officials to try and resolve their trade war.
But offsetting the bullish charge was the announcement by the U.S. Energy Information Administration that domestic crude stockpiles were virtually unchanged last week -- up by a miniscule 7,000 barrels -- against expectations for a drop of 3 million barrels.
But more eye-popping was the near-7-million-barrels build in gasoline inventories, which the EIA said were now 5% above the five-year average. Distillate fuel stockpiles, which account for diesel to heating oil and jet fuel, increased by an even more staggering 9.5 million barrels last week, although they remain about 7% below the five-year average.
Those builds came on the back of 97% capacity run by refineries, which seemed fully back to work with the start of the New Year.
"It's a very bearish report for oil considering the huge builds in the products," said John Kilduff, founding partner at New York energy hedge fund Again Capital.
"I understand with the drop in post-holidays travel and trucking activity, some slowing demand is expected for products, but not to this extent," Kilduff added. "This is evidence of a slowing economy everyone's talking about, in the U.S. at least, if not the world."
That once again raises question of what oil traders and investors should follow. The stock market or fundamentals of crude, which the weekly EIA data notwithstanding, is certainly looking more aggressive from OPEC's determination to recoup all of last year's 25% price drop with production cuts.
"It's clear that the Saudis are in the process of moving high heaven and earth to stem production," Kilduff said. "But we can't be running on Wall Street juice alone. If we don't get corresponding numbers for oil demand, you just can't keep kicking this market higher."
Tariq Zahir, managing member at the oil-focused Tyche Capital Advisors in New York, agreed.
"We are in a very low demand period," Zahir said. "All eyes will now turn to the cuts and if Saudi Arabia will do as promised. If we do not see cuts from Iraq and Russia, the Saudis will have to shoulder the majority of the cuts and if they don't, a new glut could start developing. At this point we feel prices will go lower in the days and weeks to come from here until we see evidence of the cuts."