Oil-linked FX gets a boost

Oil prices rallied to a one-month high as expectations increased ahead of EIA inventories reports.

There are clear signs that U.S inventories have fallen from record high levels. WTI crude today has reached $51.50 in early European trading on tightening supplies speculation.

Improving US consumer health has seen a deeper draw on gasoline stockpiles. Gasoline supplies fell 3.7 million barrels while distillates stockpiles dropped 2.5 million barrels last week.

In addition, potential supply disruptions in Libya and an unscheduled production outage in the North Sea provide further support for higher crude prices.

Crude bullish sentiment has given oil-linked FX a boost. Global storage inventories have been a overhang to higher prices. As glut is substantially reduced, crude prices can move higher. Mexican Peso (MXN) and Ruble (RUB) have led the gainers on the Emerging Markets side.

Oil and gas stocks were the second best sector in equities. We are constructive on the complete crude trade since global economic conditions (improvement in trade and manufacturing) are driving additional crude demand.

OPEC capped production limits by 1.2 million barrels and any extension (unlikely to end in May) might have seemed trivial at the time. However, with global fundamentals strengthening and heading to the summer driving season every barrel counts.

Peter Rosenstreich – Market Analyst – Swissquote