Crude fundamentals weak but US stimulus, weaker dollar spur gains - Aug. 7, 2020
Benchmark Brent and WTI crude futures hit five-month highs on Wednesday this week, even as the coronavirus maintained its grip across the world, either as an accelerating first wave in the US, Brazil and India, or in the form of pockets of new flare-ups in Australia, Vietnam, Hong Kong, Japan, China and Spain.
Global oil demand recovery concerns remain intact, even as OPEC+ puts more oil into the market with a tapering of its cuts from August 1.
Oil industry players have been trying to reconcile conflicting signals – crude prices at five-month peaks but no easing of the contango in the forward curves, and growing discounts being offered for physical barrels.
What gives? We highlighted the major role of a sharply weakening US dollar in propping up crude prices in our last Oil Viewsletter. We delve into it again this week, with an outlook on the greenback’s trajectory from our knowledge partner, Complete Intelligence.
Friday was shaping up to be a highly volatile and emotional day for the global financial markets as we closed our Viewsletter. Investors are eagerly awaiting the results of the long-drawn tough negotiations between the US Republicans and Democrats over the country’s second coronavirus stimulus package.
There was no deal as of Thursday night US time, and talks were expected to continue on Friday and likely into the weekend or even next week. While there are no doubts that a deal will be reached eventually, as the stimulus is crucial to supporting the US’ economic recovery, weary and probably impatient investors have been alternating between risk-on and risk-off modes in knee-jerk reactions to the tone of the latest headlines on the stimulus talks.
Crude futures were sliding through the Asian day on Friday, but began paring the losses by early morning US time after data showed US unemployment easing to 10.2% in July from 11.1% in June.
But the twists and turns in the US stimulus saga were expected to drive more volatility in the coming hours and days.
A stimulus deal will pressure the dollar lower and boost risk appetite, both of which would be supportive for crude prices. However, given the weaker market fundamentals, we expect Brent to remain in the high-$40s even after notching gains.
Neutral short-term, mildly bullish next 3 months - July 31, 2020
After weighing the key price-influencing factors in the global oil markets, our July issue of Bulls & Bears concludes a Neutral stance for the short termand Mildly Bullish for the next three months.
For the next few weeks: A weakening US dollar is the main factor propping up crude prices. Though OPEC+ cuts are set to taper from Aug 1, the producers’ alliance is still expected to keep a significant amount of crude supply – likely around 8 million b/d – out of the market. Continued monetary policy support across the world’s economies and vaccine hopes will likely sustain risk appetite, maintaining a floor under crude. But on the flip side, a flattening of the demand recovery curve, bulging global oil inventories and near-term uncertainty over the pandemic’s trajectory will weigh on market sentiment, making of an overall Neutral outlook.
For the coming 3 months: OPEC+ is set to maintain its deep cuts through December 31. Not many outright bullish factors, but we see several price-supportive elements, making for an overall Mildly Bullishoutlook. We are not going beyond three months in this report as the November 3 US presidential election could be a major game-changer for the global financial markets, indirectly impacting crude.
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
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?
Crude backs off 5-month highs in some profit-taking early Thu - Aug. 13, 2020
Crude futures were paring Wednesday’s 2.0-2.5% gains early Thursday in Asia, as fresh five-month high settles for Brent and WTI spurred some profit-taking.
With a bullish set of weekly US oil market data from Energy Information Administration on Wednesday already priced in, crude futures were looking for fresh direction. In the absence of any major oil market headlines to sway sentiment, prices are likely to default to inversely tracking US dollar movements and moving broadly in line with risk appetite in the global financial markets.