OIL VIEWSLETTER

Crude, at one-month high, overshoots to the upside - April 16, 2021

Crude snapped out of its limbo and leapt up to four-week highs. It now lurks in overbought territory.

I told Bloomberg TV in an interview on Monday (April 12) that while there were good reasons for crude’s month-long stalemate, when it breaks free, it would be with a move to the upside. And that’s exactly what happened mid-week.

The bullish narrative of the world being on the cusp of controlling Covid had been overshadowed by Europe’s renewed Covid woes since mid-March, but only needed a good reason to storm back centre-stage.

That reason came in the form of a string of upbeat US macro-economic data for March and was reinforced this week by a jump in the country’s weekly fuel sales. OPEC, the US Energy Information Administration as well the International Energy Agency synchronously upgraded their 2021 global oil demand forecasts, adding to the gathering upward momentum.

Brent futures settled a whisker below $67/barrel, the highest in a month, on Thursday.

The problem with the rally is that the unbridled optimism is based on a blinkered view. The pandemic is far from over. The latest 7-day average of global count of new daily cases stands above 736, almost on par with the all-time-high hit around January 11. 

Europe remains in the grip of a third wave; the recent weeks’ surge in Brazil is far from over; India is battling a ferocious spike; infections are rising in Japan, South Korea and the US; and Canada is being hit by another wave.

A handful of more transmissible coronavirus mutants are triggering fresh outbreaks. Some variants may be deadlier while others may be able to evade antibodies and thus render current vaccinations ineffective, according to experts studying them. Vaccination drives continue to suffer setbacks from fear of side effects such as blood clotting. Anecdotal evidence of people catching Covid even after being vaccinated is growing.

So, what now? Crude has overshot to the upside and will need to reconcile by replacing the rosy US portrait with a very mixed and uncertain global picture.

 

 

 

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BULLS & BEARS

Apr 2021: Neutral near-term, mildly bullish over next 3 months - April 2, 2021

OPEC+ and Saudi Arabia decided to gradually ease their collective and unilateral output cuts respectively over May-Jul at a ministerial meeting on Thursday, once again surprising the market, as the consensus expectation was a rollover for May.

The deal will see the 23-member OPEC+ alliance put 1.14 million b/d of supply back into the market by July. With Saudi Arabia simultaneously planning to gradually roll back its 1 million b/d additional cut over the three months, it would amount to a total supply increase of 2.14 million b/d by July.

Altogether, total effective OPEC+ and Saudi cuts will ease from 7.9 million b/d in April to 7.3 million b/d in May, 6.6 million b/d in June and about 5.76 million b/d in July. The supply increase is thus back-loaded over the three months.

Notably, the easing of Saudi Arabia’s additional cut from 1 million b/d in April to 750,000 b/d in May, 400,000 b/d in June and zero in July was not included in the formal OPEC+ communique. It was a decision outside the OPEC+ ambit and we expect the Kingdom will keep some manoeuvering room on that front.

After a day of highly volatile trading, Brent and WTI futures settled with gains of over $2/barrel on Friday, a reaction that seemed incongruous with the OPEC+ decision. We don’t buy the argument that the alliance’s decision to resume tapering its cuts from May is a bullish sign as it shows confidence in demand recovery. An OPEC+ technical committee earlier in the week downgraded global oil demand outlook, especially for Q2.

It could well be that another rollover would have been problematic, as Russia and Kazakhstan were again seeking dispensation to raise their production levels. A move to extend cuts yet again could have also triggered fresh tensions over the accumulated oversupply on account of quota-busters who have not fully delivered on their compensatory cuts in recent months. Finally, it might also be that Saudi Arabia does not want to be seen as over-tightening the market to drive oil prices higher while economies are still struggling to get back on their feet. The way we see it, Thursday’s deal was a compromise, an attempt to preserve cohesion within the 23-member alliance.

After taking the latest OPEC+ deal into view and weighing the key price-influencing factors in the global oil markets, our April 2021 issue of Bulls & Bears has arrived at a Neutral view for the near-term and a Mildly Bullish view for the next three months.

The Neutral outlook corresponds to an expected pullback in prices from Friday’s levels and Brent hovering around the low-$60s.

The Mildly Bullish outlook corresponds to Brent around the mid-$60s.

 

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 extends Mon's modest gains amid US cheer, weaker USD - April 20, 2021

Crude futures were continuing to inch up early Tuesday in Asia, building on Monday’s modest gains, propped up by a persistent slide in the US dollar and a sustained cheer over US economic and oil demand recovery picking up pace.

The ICE US Dollar Index settled at 91.05 on Monday, weakening for the sixth consecutive session and hitting lows last seen about one and a half months ago.

With the latest weekly US oil balances and demand data on tap, analysts polled by Platts are  expecting a draw of about 4.4 million barrels in crude stocks, a build of 800,000 barrels in gasoline and a decline of 1.3 million barrels in distillate inventories.

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