WTI crude oil breaks the August high — touches $85 for the first time since November

Today is the seventh straight day of gains for oil and it’s broken out to the highest levels of the year. The $85 level has been a barrier for crude this year but yesterday Russia’s Novak said that next week OPEC+ will announce a new supply agreement. He didn’t say whether that would entail deeper or prolonged cuts but it’s set off some speculation. The subtext is also that Russia and Saudi Arabia continue to work hand-in-hand, which suggests a floor at $70 for crude.

In addition, the latest rounds of stimulus from China suggest that tail risks around a sharp slowdown in the Chinese economy are receeding. At the same time, the odds of a recession in the US and Europe are rising so the demand side could be a problem as well. However at the moment, the market is somewhere around 2 million barrels per day undersupplied so inventories are being drawn down. So long as OPEC stays united and shale operators remain disciplined, the bulls are in charge.