Crude pares gains in profit-taking but bullish pivot intact - June 11, 2021
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…
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:
The bearish influences have subsided into downside risks:
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.
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.