Strong dollar or weak dollar, take your pick. The dollar took a break last week after President Donald Trump said that the dollar was too strong. U S. Treasury Secretary Steven Mnuchin told the Financial Times a strong dollar was a positive in the long term. Overall this did not help the mood of the commodity sector that is acting like it had too many Easter eggs. Both precious metals and industrial metals are taking a hit and that is not helping oil as the market sells off in a light volume frenzy. 

Talk about rising U.S. oil output also dampened the market mood but the truth is, the increase in U.S. oil output is still just a small offset to ongoing and serious U.S. oil production cuts. Reuters reported that the latest U.S. government drilling data showed shale production in May was set to rise to 5.19 million barrels per day (bpd), with output from the Permian play, the largest U.S. shale region, expected to reach a record 2.36 million bpd. The estimates for a combined 124,000 barrels-per-day growth in U.S. shale production over May is nice but far short of what a determined OPEC is bringing to the plate. As I have been saying for months, OPEC and non-OPEC cuts and strong demand will overshadow U.S. shale increases over time.

Others are seeing the light and are now agreeing with me. Reuters is reporting that Goldman Sachs Group Inc. is backing oil and says it will probably rally to the mid-$60s by the end of the year. Citi analysts Ed Morse and Seth Kleinman are also now on board writing that, “While U.S. shale output may come “roaring back” amid higher crude prices, production curbs by OPEC and its allies should help offset that increase over the next six to nine months.” We of course, long ago wrote that the OPEC/non-OPEC accord was a game changer and that not only would they do a deal but they would also comply. While non-OPEC compliance has been a bit slow, it is moving in the right direction and with global demand on the rise, prices are poised to move higher. We still believe that oil is at a long term generational bottom that was established a year ago and current conditions will see a significant tightening of supply in the coming months driving up prices.