CRUDE IN SIGHT

Crude pares gains in profit-taking but bullish pivot intact - June 11, 2021

  • Crude futures were softening early Friday in Asia amid some profit-taking prompted by Thursday’s fresh two- and two-and-a-half-year high settlements in ICE Brent and NYMEX WTI futures. However, there were no indications of a pullback in the making, let alone a correction.
  • OPEC’s latest monthly market on Thursday provided a fresh impetus to the bullish narrative centred on a demand rebound in the Western hemisphere.
  • There was a short-lived dive in crude prices late-Thursday as some market participants initially misunderstood news headlines about a US announcement easing sanctions against some Iranian individuals and shipping and petrochemical companies.
  • On balance, the development has not changed market expectations that a US-Iran deal and removal of US sanctions against Iranian oil sales may take several months to fructify.

ARCHIVES

OIL VIEWSLETTER

Crude may be at an inflection point but $80 is a stretch - June 4, 2021

Brent rallied to fresh two-year highs this week, finally vaulting above the $70 mark and surpassing $71 soon after.

WTI vaulted to levels not seen since October 2018, with the main driver of market bullishness, a sharp rebound in US demand, providing it a relatively bigger boost.

The Memorial Day weekend travel spree in the US fuelled confidence that the country had put more than a year of Covid constraints behind it. Strong macro-economic data from the country has been steadily bolstering that narrative in recent weeks.

Among the confluence of factors supporting crude’s climb were OPEC+ resisting opening the spigots a bit wider than planned for June and July, the prospect of a US-Iran deal retreating into the distance, and a sustained and sharp decline in Covid cases in India allowing states to start reopening gradually. 

But that doesn’t mean crude is now on course for $80, a prediction some analysts touted again this week. What supports our conviction? Read on… 

 

ARCHIVES

BULLS & BEARS

June 2021: Mildly bullish near-term and next three months - June 11, 2021

Crude prices have settled into a higher orbit. Brent and WTI hit successive fresh two- and two-and-a-half-year highs respectively this week, above $72 and $70.

The bullish factors have stacked up in recent weeks. Major among them:

  • An end to Covid restrictions in the US, accompanied by strong macroenonomic indicators and a sharp upturn in mobility and oil demand as seen in the EIA’s weekly data.
  • OPEC+ maintaining the utmost restraint, avoiding opening the spigots a bit wider at its Jun 1 meeting despite crude’s strong and sustained rally. OPEC’s monthly report this week not only shows the group turning more bullish on Q2-Q3-Q4 demand versus last month, but also its 10 members bound by quotas under-producing their raised May ceiling by 320,000 b/d.
  • An Iran deal and a potential lifting of US oil sanctions against the Islamic Republic retreating into the future.

The bearish influences have subsided into downside risks:

  • A continuing threat from more contagious mutants of the coronavirus, having caused resurgent waves of the pandemic or fresh outbreaks across several parts of Asia.
  • A persistent ballooning of inflation and recurrent jitters in the market causing a sell-off in speculative assets.

 

After taking stock of all the upward and downward pressures on crude, our June 2021 issue of Bulls & Bears concludes a Mildly Bullish view for the near-term as well as the next three months.

 

The near-term Mildly Bullish outlook corresponds to crude holding on to its recent gains and continuing to tick higher, albeit with a slower momentum, as most of the supportive factors have been priced in for the time being.

The Mildly Bullish view for the next three months corresponds to Brent gradually climbing to the mid-$70s. We don’t see a sustained move higher, much less to $80, as we expec OPEC+ will proceed to put more supply into the market from August.

 

 

EXECUTIVE 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.