Bearishly construed rhetoric out of the Saudis overshadowed a plunge in the greenback. Consequently, the energy liquids complex took a header to start the new trading week. Lyondell’s shut-in of a cat cracker and Enbridge’s February allocations only fueled the Street’s agita, who, as we noted yesterday, owned more than 4× the physical capacity of the Nymex hub as of last week.
For starters, the euro hit a two-month high, 1.3686, yesterday (Monday) which upon first blush might seem consequential. However, first looks are often misleading. Over the last two months the daily correlation between Nymex WTI values and the euro/dollar cross has plunged from .784 (strong) to .336 (not strong) and the coefficient of determination (R2) has dropped by 240 bps to 49.9%.
In other words, the intuitive assumption is less than half of yesterday’s movement in oil can be explained by the movement in the dollar.
Meanwhile, the bears got all excited by some comments from Saudi Arabia’s oil minister, Ali Al-Naimi, who in a speech in Riyadh noted that… “Some OPEC countries will increase their production capacities, thus maintaining OPEC’s spare capacity at approximately 6 MMbbl/d.” The obvious assumption is that by “some OPEC countries” Al-Naimi was saying Saudi Arabia.