OIL VIEWSLETTER

Promise of summer oil demand boom obscures attendant risk - May 7, 2021

Amid a sense of heightening frustration and desperation over a festering virus around the globe more than a year into the pandemic, the US racing towards normalcy and European countries making plans to end restrictions for summer holiday travel is uplifting news. It prompts hope that the rest of the world, which may not be as fortunate right now, will follow suit.

Crude has been rallying again with an eye on a summer demand boom.

While on a personal level we prefer to think positive and stay optimistic, with an analyst’s hat on, we see the risk of a resurgence of the virus on either side of the Atlantic as borders are reopened and people allowed to mingle in the coming months.

The unprecedented spike in infections triggered by new mutants of the SARS-CoV-2 not only in India, but also parts of Southeast Asia, Japan and Canada could be a story that gets replayed in the US and Europe. Neither the US nor the EU countries will be anywhere close to “herd immunity” by summer.

Not only that, but the US is abandoning the goal of herd immunity. We give you our take on the significance of this crucial development and the alternate to the dream of a “Covid-free” vaccinated world that we – and the oil market – needs to be prepared for.

ARCHIVES

BULLS & BEARS

May 2021: Neutral near-term, moderately bullish over next 3 months - April 30, 2021

Benchmark Brent and WTI crude futures rallied to six-week highs above $68 and $65 respectively at Thursday’s settlement. 

This week’s gush of optimism was almost entirely driven by the US, with fresh rounds of upbeat macro-economic data, strong mobility metrics and oil consumption numbers all sending the same message: A country roaring back to life. 

Across the Atlantic, the worst-hit major economies of continental Europe appear to have turned a corner with the pandemic slowing down and vaccinations picking up pace. The region’s summer tourism season, in peril just over a month ago, is back on the agenda.   

More big economies are joining China in the “post-Covid” club and the OPEC/non-OPEC alliance appears sanguine about a strong global oil demand rebound in the coming months.

A stark exception is India, which is in the grip of a devastating second wave that looks set to extend into May. The central government has steered clear of a nationwide lockdown but a growing number of states and local authorities are imposing stricter curbs amid a relentless spike in cases, hospitalisations and deaths. 

The reasons the crude complex has discounted the crisis so far are (a) the absence of a strict national lockdown and (b) the rise in US, European and Chinese consumption is expected to more than offset the drop in Indian demand.

After taking the latest market developments into account, our latest issue of Bulls & Bears  concludes a Neutral view for the near-term and a Moderately Bullish view for the next three months.

The Neutral outlook corresponds to an expected pullback in prices from Thursday’s levels and Brent hovering around $66-68/barrel. 

The Moderately Bullish outlook corresponds to Brent vaulting into the $70-75/barrel range, with the caveat that we see the higher end of the range in June and July, not before.

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

OPEC+ deal sets stage for a tumultuous start to 2021 - Dec. 4, 2020

After a week of fractious negotiations, the OPEC/non-OPEC alliance decided on Thursday to add a modest 500,000 b/d of supply to the market from January. The market had been expecting a three-month rollover and as the talks dragged on, had started to factor the far more bearish possibilities of a 1.9 million b/d boost, or worse, a second collapse of the alliance and its deal.

 The final outcome did not appear too catastrophic and crude staged a relief rally, slightly surpassing the nine-month highs hit a week ago at Thursday’s settle. Prices spiked at market open in Asia on Friday, but had begun to lose momentum as the day wore on.

As the dust settles on this week’s OPEC+ drama and decision, we expect crude to principally revert to tracking the virus-versus-vaccine duel, alternating between bouts of optimism and pessimism. There will be other characters on the stage of course – a steadily weakening US dollar and signs of the US Republicans and Democrats once again attempting to get behind a second coronavirus relief package. We’ll have more on that in the coming weeks.

In this Executive Briefing Note, we focus on all the dimensions and implications of the OPEC+ deal. Importantly, we would say that while the producers’ alliance is to be lauded for becoming ultra-flexible and fleet-footed to try and keep up with the uncertainties of the pandemic, the decision to review and adjust the production ceiling on a monthly basis – an unprecedented policy shift – could have grave consequences for the market.

 

 

CRUDE IN SIGHT

Crude trades sideways early Fri, awaiting fresh direction - May 7, 2021

Crude futures prices were trading almost flat with Thursday’s slightly weaker close early Friday in Asia, looking for fresh direction. While a strong downward momentum was missing, there were also no news to spur a rebound.

Brent and WTI futures settled just over 1% lower on Thursday.

The euphoria over an accelerating US economy and summer reopening plans across the European Union remains in the driver’s seat for the oil complex.

ARCHIVES