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Why is Crude Oil Strengthening?

Bill Baruch joins Schwab Network to discuss this morning’s market expectations.


Welcome back to the second half of the future show. We’re less than 60 minutes away from the cash open for stocks on Wall Street. Futures still suggesting a bit of a rebound after yesterday’s selling. We’ve got while the indices green arrows across the board. The S&P is hanging off just below that 5000 level. I’ve got them at 4993.

They’re up about 4/10 percent. I want to bring in Bill Baruch is president of Blue Line Futures. He’s joining us this morning to take a look at commodities Bill. Good morning to you. Interesting to see crude yesterday higher with the broader market lower. It was really shrugging off some of those inflation concerns that weighed on stocks. Yeah, the crude oil has been in a nice uptrend last couple of days and is back to the top end of the range.

Yeah, it really did shake things off. Obviously. The EIA report coming up today. See how that how that impacts things. But you know a lot of these economic releases cross been been able to sort of act on its own maybe not CPI inflation so much but if you look at a number like retail sales coming out but that comes in hot, you know, we could see again, rates rise, stocks sell off, metals sell off.

But but crude should that should actually bring a bullish tailwind to crude. So we look at from that perspective, not only some of the economic data, one could argue it’s had a very level headed approach toward some of the geopolitical events that are playing out. I saw some comments from OPEC yesterday possibly supporting the market here, talking about positive trends for economic growth expected to extend into the first half of 2020 for global economic growth, they said remains robust.

They said further upside potential could materialize in all major OECD and non or OECD economies. Kind of a rosy picture here, again, tying in to some of that strong economic data, the economic figures we’ve been seeing recently. Absolutely. And that does align with our views. You know, we are more upbeat on the economy. We’ve been here in the U.S., the no landing, you know, soft landing camp, if you will.

But when it comes to the global economy, yeah, China’s had its issues, but we’ve been somewhat patient with with how China could turn a corner here. We do expect coming out of this holiday this week, this new year holiday that we could see some some more you know, some more measures introduced by the People’s Bank of China or and regulators there that that could continue to bring some tailwinds.

But globally, you know, we don’t see it absolutely deteriorating conditions. And I think that’s that’s really what OPEC’s hitting on. And we agree with that. I think overall geopolitical risks are really underpinning some of the strength, too. So that’s something there. But we take a step back. We do have to remember that this is an election year. And, you know, so I do see that being a headwind as the year unfolds.

And but, you know, to to that, we’ve seen record production here in the U.S. now something that the White House is really writing home about and bragging about because of their overall stance. But that that overall is a headwind to any sustained rally. At the moment, though, we remain we remain bullish on crude. We’ve have some positions in our in our commodity trading advisory that give us long exposure in crude oil.

We have an energy fund that that is more of a statistical arbitrage, but we overall have a bullish view here for now in crude oil. You know, Bill, I really like the words used to describe investors and their approach towards the developments. As a recent, you said they’ve been very patient. Right. We’ve been kind of describing it as the market participants focusing on the positive and kind of discounting the negative crude prices being one of those negatives.

Right. The rally we’ve seen recently, the $80, but sort of focusing on the positive in terms of that run up. We saw in crude, maybe it was the OPEC mention of stronger economic growth, but also they talked about how oil production fell 350,000 barrels per day in January and as voluntary output cuts from Opec+ Alliance on the first quarter took effect here.

But also, as I look at that, we saw a strong dollar yesterday as well, Right? A big move up there. And that sent gold sharply lower down to 1988, back above 2000 here right now. But just another one of those commodities, I’m sure it’s on your radar in terms of very volatile environment in reaction to yesterday’s news. Yeah, it’s it’s certainly on my radar tonight.

Not fun for somebody running a metals fund, you know, sort of dealing with that type of pressure in the market. But, you know, listen here, gold gold broke below a big floor that was developing 2023. That’s roughly also previous lows, but aligns with the 200 day moving average. In the April contract, we battled and we spotted out above that support in recent sessions prior to yesterday.

So we’re slicing through that. We also had supported 2016, which was the December Fed reversal, where it’s settled, it settles before the Fed announcement on on those days. So that was a big surprise. Just slice right through all that. Now it’s battling it to $2,000. My fear here is if we don’t close the week or have any sort of catalyst that really rebounds this, we’re going to find it.

Back in the 1980 1985 area. So overall, I’m just managing positions. We have a enormous amount of puts covering covering some core futures positions. We’ve tapered those back as support was was breaking yesterday, too. So this kind of, you know, battle because we ultimately believe gold is in an uptrend. And yeah, there was the blow up top early last year and know sort of markets now coming back into the Fed’s you know what the Fed believes their monetary policy path is going to be this year so the markets could point to a rate cut expectations back.

So no, I overall I’m very upbeat on gold in the sense that once we start to see those cuts introduced, whether that’s I don’t think March is on the table anymore, I still think may is the move. But if it if it takes as long as June it’s usually gold. Gold typically trades 6% higher in the 30 days following the first Fed cut bill.

Talk to us a little bit about Bitcoin. We touched on it earlier in the show. I’d imagine it’s another product that’s on your radar here with the recent rally. We’ve seen that risk on tone, a similar environment as far as what we’ve seen across the board stocks. Yeah, I mean, you’re seeing 50,000. It’s been it’s been a big, big move.

And and overall, a lot of demand for these ETF products. But, you know, I think really the way to really get terrific access to Bitcoin is you know, our team here headed by buyer chief market strategist Philip Struble who joins your show often works with clients in these Bitcoin futures There’s micro Bitcoin futures, micro ether futures too, which is really a great way to be accessing the market.

You know, even somebody thought maybe, you know, we could have had a buy the rumor, sell the news. That’s sort of my my thought was as we went into the launches ETF products and we did there was the idea there were some head and shoulders and added resilience. So it’s such resiliency in the way Bitcoin is as traded.

And now back at 50,000, it could be, could be extending those gains further. Yeah definitely. As I like the reminder and some of the micro bitcoin products, I’d forgotten about that. A good access point for someone looking to voice their opinion without necessarily tic for tech, a risk associated with the larger size contract. And I think that chart here that we just looked at the rally the breakout recently too well overnight it looks like up to 52,001 30.

Another example of how investors have been very patient in many ways. Well, go ahead. It is it is a pure, pure play. That’s what you really think is it’s a pure play at a trusted exchange. And using those micro products is really terrific. I like that. Any other products on your radar? Commodities that we haven’t touched on, You know, copper, you know, it’s try to bottom out a bit here.

I think, you know, if we come out of this Chinese Chinese holiday and we do start to see a little more measures and and and looking at economy, keep copper on your radar, it’s really got to stay above three seven, although I don’t like you know, yesterday it kind of dipped below a little bit overnight. Keep an eye on copper here as as the year unfolds if it’s can stay above 370, I think we could see a retest back to four bucks as the year unfolds.

And it’s not immediate, but be patient with that. We have been watching copper and kind of describing it as a very level headed approach towards what we’ve seen as far as some of the ups and downs and speculation in some of the other markets here. One could argue the dollar and a similar situation. Bill, broke precedent. You joining us here.

Thanks for sharing part of your Wednesday with us. Good to have you back on the show. There’s a blue line futures now for a check on some developing


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