OIL VIEWSLETTER

Crude climbs to four-month highs, may get reality check from demand - July 3, 2020

The pandemic has been accelerating in at least 37 of the 50 US states, prompting many to roll back or put on hold some of their reopening moves and plans.

It is still a “light touch” approach by most state governors – closing non-essential businesses and activities, advocating social distancing and the wearing of masks. Stay-at-home orders have not been revived, and there are certainly no “lockdowns” like those imposed earlier by the hard-hit countries in Europe and Asia.

However, that could result in the situation in the US festering for much longer than it did in the countries that adopted more harsh containment measures. And that means a big cloud over the demand picture of the world’s largest oil-consuming nation.

It’s time to keep a close eye on US oil product sales, especially gasoline. Consumption of the motor fuel bounced out of the pandemic nadir through May and June, but the recovery may flatten in the coming weeks.

A combination of slowing global oil demand recovery and OPEC+ readying to put more than 2 million b/d back in the market starting next month could stall market rebalancing. 

Meanwhile, cracks are reappearing in the OPEC/non-OPEC alliance, which was glued back together after the dramatic March 6 break-up. An irate Saudi Arabia is said to have recently warned Nigeria and Angola, among the chronic quota-busters, that it would start an oil price war if they didn’t submit detailed plans to compensate for their over-production through deeper cuts.

An OPEC+ collapse (again) is not our base case, but certainly a wild card in the oil market. What are some of the other wild cards and what impact might they have on prices? Read in our WILD CARDS SPECIAL section.

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BULLS & BEARS

Mildly bullish near-term and next six months - June 24, 2020

After weighing the key price-influencing factors for the next few weeks and the coming 3-6 months in the global oil markets, our June issue of Bulls & Bears concludes a mildly bullish picture for both time horizons.

For the next few weeks: OPEC/non-OPEC output cuts with a strong emphasis on achieving full compliance have mopped up excess supply. The remaining job of market balancing is being done by a steady recovery in global oil demand as economies continue to reopen. Nonetheless, concerns over rising infection levels continue to act as a drag on bullish sentiment. There is probably also some “cheer premium” in crude on account of the market having rebalanced faster than expected. We may also be seeing a post-lockdown burst of spending from pent-up demand that could soon give way to a structural slump. 

Brent appears to be stabilizing around $42/barrel. We could see it aiming for the mid-40s in the next few weeks but bigger gains are unlikely, in our view.

For the coming 3-6 months: OPEC+ will maintain deeper cuts through July but is expected to taper them from August, potentially putting 2.2 million b/d or more of supply back into the market. However, that should be offset by a continuing gradual recovery in demand. If the market remains slightly undersupplied through the second half of the year, floating and landed stocks should continue to drain. However, it remains to be seen how economies manage their way out of this recession. The “V” shape of global oil demand between Q1, Q2 and Q3 is likely to give way to a Nike swoosh, a slow and long-drawn trek to normal consumption levels, possibly going into H2 2020.  

We expect Brent to recover to high-$40s / $50 by Q4.

 

 

ENERGY RADAR

energy radar first report - Jan. 13, 2020

Shortly before the markets opened, US President Donald Trump tweeted that he had authorised the release of stocks from the country’s Strategic Petroleum Reserve if necessary, to keep the y 9.30 am Singapore time (0130 GMT), three and a half hours after trade opened for the week on the CME and ICE futures exchanges, crude had calmed down somewhat, to gains of 10-12% versus Friday’s clsoe. markets

BRIEFING NOTES

How big is the oil supply cut -- 9.7 mil b/d or up to 20 mil b/d? - April 14, 2020

Crude has shrugged off the 9.7 mil b/d cut agreed for May-June by OPEC+ on Apr 12.

ICE Brent settled a meagre 26 cents higher, while WTI closed 35 cents lower on Apr 13.

Abdulaziz, Novak and Trump are insisting the actual reduction will be 15-20 mil b/d.

Where is the truth? Somewhere in between or is it creative accounting?

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CRUDE IN SIGHT

Crude pares gains early Tue as demand worries persist - July 7, 2020

Crude futures were easing early Tuesday in Asia, as sentiment continued to seesaw between  bullishness over OPEC/non-OPEC slashing supply and bearishness over oil demand recovery, especially in the US, which remains in the grip of an accelerating pandemic in several states.

A US federal court judge on Monday ordered the shutdown of the Dakota Access Pipeline by August 5. The pipeline, owned by Energy Transfer Partners, began operations in June 2017 and has the capacity to ship 570,000 b/d of crude from North Dakota to the Patoka Hub in Illinois.

The Khafji and Wafra oil fields in the Neutral Zone on the boundary between Saudi Arabia and Kuwait resumed production at the start of July after a five-year halt, the Kuwaiti oil ministry said on its Twitter account on Monday.

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