OIL VIEWSLETTER

Demand worries begin to chip away at crude's surge - Jan. 22, 2021

Though we pride ourselves on generally doing a good job of pointing our readers in the right direction even in the most confounding and noisy of market situations, it’s not often that we have a chance to say we were actually prophetic.

“Raging pandemic will continue to punctuate crude rally” was our headline last week. “Be prepared for a two steps forward-one step back rally in crude, at least through this quarter,” we said in our email note.

This week’s crude price moves bore us out. Need we say more?

We only wish our crystal ball was as clear on the impact the new Biden administration in the US will have on the oil and gas markets. Much of the new president’s green energy agenda is an outline, waiting for the details to be filled in. Much of it will likely evolve in the months to come, shaped by political and economic considerations.

The one concrete move that did come out this week from the Biden White House was the cancellation of the Canada-US Keystone XL oil pipeline. We examine the implications and ramifications.

 

 

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BULLS & BEARS

Dec Bulls & Bears: Neutral near-term, mildly bullish for Q1 - Dec. 9, 2020

After weighing the key price-influencing factors in the global oil markets, our December issue of Bulls & Bears concludes a Neutral view for the short term and Mildly Bullish for the next three months.

For the next few weeks: A succession of regulatory approvals and rollout of Covid vaccines across the world will keep the optimism premium in crude intact. A continuing strong demand recovery in Asia, led by China and India, and the US dollar's steep slide are supportive factors. OPEC+ opting out of a 1.9 mil b/d supply boost from Jan prompted a small relief rally in crude, and the decision has retreated to the sidelines for now. However, a resurgent virus in Europe and the US, the resultant curbs and signs of economic strain are offsetting the positive sentiment from vaccines, leading to an overall Neutral outlook.

Our Neutral outlook corresponds to Brent averaging around $49/barrel, close to today's levels. 

For the first quarter of 2021: The immunisation drive against Covid is expected to gain momentum in the OECD countries as well as major economies Russia, China, India and Brazil. If Covid hospitalisations and death rates start declining, countries could start planning for normalisation of economic activity in Q2 and crude would start pricing that in over Feb/Mar. Despite the arrival of vaccines, governments and central banks will be cautious and keep fiscal and monetary stimulus flowing. OPEC+ tapering of curbs will be neutral if carefully calibrated to market needs. However, vaccines will not be able to deliver herd immunity against Covid in the current winter, and the pandemic will continue to serve as bearish pull in the oil market, which leads to a Mildly Bullish outlook.

Our Mildly Bullish outlook correspondings to Brent averaging around $52/barrel, about 6% above today's levels.

 

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 back under pressure early Fri as Biden stimulus plan faces test - Jan. 22, 2021

Crude futures were sliding early Friday in Asia as optimism over the newly installed Joe Biden administration’s plan to unleash a fresh stimulus package took a knock from early criticism from some Republican lawmakers of the size of the spending.

Republican senators from Alaska and Utah, who were members of the bipartisan group of senators that crafted the $900-billion stimulus package in December, on Thursday expressed doubts over the need for another bill with a $1.9 trillion price tag.

Meanwhile, another set of grim weekly US unemployment numbers released on Thursday served as a reminder of the country’s precarious economic recovery.

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