Crude softens early Tue amid mixed economic signals - 22 Jan 2019

  • Crude futures were mildly softer early Tuesday morning in Asia, as weaker fresh economic data, especially Chinese GDP figures released on Monday, forced a pause in the rally carrying over from last week, which was mainly spurred by optimism over the US and China being able to break the deadlock in their trade dispute.
  • Most of the stock markets that had begun trading in Asia — Japan, South Korea, Australia, New Zealand and Singapore — were in the red. That signalled downward pressure on crude futures as well, going by the continuing close correlation between the stock markets and oil.
  • The International Monetary Fund on Monday lowered its global economic growth forecasts for 2019 and 2020, the second downward revision in three months.

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Oil Viewsletter

US, China shore up oil market sentiment with talk of concessions - 18 Jan 2019

  • Overtures and concessions were coming thick and fast from both Washington and Beijing as the week came to a close, providing a big boost to stock markets across the globe as well as crude. As we mailed this report, just a couple of hours before market close on Friday, Brent and WTI futures were poised to settle at their highest levels in more than a month.
  • As we have been discussing in our Viewsletter, the US-China trade spat has hung like an ominous and growing cloud ove the prospects of global economic growth in 2019, becoming one of the major reasons for increasing risk aversion among investors since last October. As stock markets plummeted amid a sustained and steep sell-off, oil has been dragged along for the ride.
  • If the US and China are able to reach a rapprochement in the coming days and weeks, investor sentiment will recover, stocks will rebound, and so will crude prices. The US Federal Reserve has already provided relief to the markets by signaling a patient and flexible approach to interest rate hikes in 2019, so that’s another hurdle removed for the time being.
  • Brent’s flip to backwardation at the front end of the futures curve on Thursday could portend a tightening market, as the latest OPEC/non-OPEC cuts begin to bite and a dissipation of the US-China tensions sets global oil demand back on the path of solid growth in 2019.

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Bearish short-term, possible recovery in Q1 - 24 Dec 2018

  • Our latest Bulls & Bears report concludes that there is no putting a floor under crude, let alone producing a bounce in prices, until the fear and anxiety in the global financial markets does not subside.
  • The risk aversion in the financial markets, if anything, has only amplified in recent days and weeks. Major US stock market indexes are close to bear territory and crude continues to be dragged lower. The volatility as well as the sell-off could get worse in thin holiday trading over the next few days.
  • However, we have a more constructive view for crude prices towards the end of the first quarter of next year. Nonetheless, even with a recovery, Brent could remain range-bound around $60/barrel, with WTI $8-10/barrel below it.
  • A lot would depend on how the US-China trade talks pan out and how the US Federal Reserve sets its course for 2019. We expect OPEC/non-OPEC producers to reach full compliance with their latest cut by March at the latest. We will update our outlook next month, based on how these factors evolve.

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Oil in the time of "Super OPEC" - Q4 2018

  • Starting next year, OPEC’s 15-member organization is planning to become turbo-charged. A permanent alliance with Russia and nine other non-OPEC oil producers will aim to pro-actively maintain global supply-demand balance.
  • A new “charter” of cooperation between OPEC and its non-OPEC collaborators will bring together 25 countries that collectively account for around 51 million b/d of production, over half the world’s current oil supply.
  • How strong and how different can the institutionalized collaboration be? Will it repeat the mistakes of the past or be future-proof? Will a “Super OPEC” be able to emerge from the shadow of doubt, disapproval, skepticism and consumer ire that hangs over OPEC, or is it doomed to fail?
  • In this quarter’s issue of Energy Radar, we examine the circumstances leading up to the upcoming inflection point for OPEC and share our view of what might lie ahead.

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