Resource stocks rally as oil surges, bonds suffer

Oil Refinery

Talk that Saudi Arabia has its sights on $80-$100 United States a barrel oil again and of more USA sanctions on Russian Federation ignited a rally in commodities and resource stocks on Thursday, though the potential boost to inflation hit fixed-income assets.

It's worth mentioning that Saudi Arabia plans to sell a 5% stake in their largest oil company, Saudi Aramco, and launch the biggest IPO in history, valued at $100Bln.

Stockpiles of gasoline also dropped by 3 million barrels, while distillate fuels including diesel declined by 3.1 million barrels.

After jumping almost 3% overnight, Brent was at $74.40 a barrel, up 1.25% on the day. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the USA could prompt more upside for oil this year.

Although U.S. crude production continues to rise, it's going to take a huge leap in the number of producing oil rigs to stop the momentum that is now driving prices higher.

Also, Saudi Arabia reportedly hinted last month that OPEC would continue coordinating production cuts with non-OPEC members into 2019. "I would not be surprised if Saudi Arabia wanted oil at $100 until this IPO is out of the way".

Also today, the chief executive of oil major Total, Patrick Pouyanné, warned that high oil prices could start eroding-albeit slightly-oil demand growth. "Despite the influence of USA shale, Saudi Arabia still calls the shots on global oil markets, and it's increasingly obvious the Saudi's are comfortable with oil at $80 or more", said Lee Wild, head of equity strategy at Interactive Investor. "But OPEC is unlikely to make any changes in June, maybe by the end of the year".

Sayed said a price of $80 to $100 per barrel could be unrealistic. If that were to be the case, and OPEC responds in the same way as they did in 2017, then the world could be in a for yo-yoing oil prices for a while.

Few OPEC sources call for an exit strategy.

"US production is too responsive to high price and there is still plenty of crude oil in tanks", he said. OPEC wants to lure more producers to join the output-reduction deal, U.A.E. Energy Minister Suhail Al Mazrouei said in a Bloomberg Television interview.

LONDON: Oil surged Thursday close to 3.5-year peaks on simmering Mideast tensions and keen U.S. demand, while London stocks rose with drugmaker Shire boosted by a takeover move.

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