WTI climbs early Tuesday, Brent weaker - 21 Aug 2018

    • NYMEX WTI futures were firming early Tuesday in Asia amid expectations of a drawdown in US commercial crude inventories last week, but Brent was marginally weaker, tracking uncertainty in the financial markets due to trade wars and US sanctions against several countries.
    • US President Donald Trump jawboned the US dollar lower, again. Trump said on Monday that he was “not thrilled” with the Federal Reserve for raising interest rates and that the US central bank should do more to help the national economy.
    • Meanwhile, Trump said he did not expect much progress in the mid-level trade talks with China scheduled for later this week. Stock markets had opened mixed in Asia Tuesday. Japan, Australia, New Zealand and Singapore were in the red, while China, South Korea, Taiwan and Malaysia were higher versus Monday’s close.
    • Shell has shut the 100,000 b/d Trans Ramos pipeline, which feeds into Nigeria’s Forcados crude export terminal, following an oil spill.
    • China is said to have begun using National Iranian Tanker Company’s oil tankers to import crude from Iran.

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Oil Viewsletter

The bear case for oil - 17 Aug 2018

  • Could crude slip into a bear market before 2018 is out?
  • To be in bear territory, or down 20% from a 52-week peak, Brent would need to slide below $64 and WTI below $60. Those levels were last seen during the financial markets turmoil of February this year.
  • Barely three months ago, with Brent threatening to pierce through the psychologically important $80/barrel-mark, market-watchers were gushing with predictions of $100 and bigger three-digit numbers for the light, sweet benchmark.
  • So, what changed? Mainly, it is the discounting of assumptions of strong global oil demand growth for 2018 and 2019 amid mounting trade and political tensions between the US and several other countries, even as the world exits the era of easy money.
  • The bearish argument in the oil market now is: What if the OPEC/non-OPEC boost, combined with moderating growth in oil demand, offsets or even dwarfs the quantum of Iranian oil removed from the market by US sanctions?
  • That is possible. But it still doesn’t support the case of Brent shedding another 10% from its current levels in the low-$70s.
  • PLUS: US-China trade talks don't alter the picture yet; US sets up special team to tackle Iran sanctions; Is the oil market poised to swing to oversupply in 2019?

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Oil demand concerns on the rise amid trade wars - 14 Aug 2018

  • Bearish influences have taken a stronger hold, especially after this week’s Turkish turmoil, but they are mostly working on market sentiment, rather than through tangible data showing sliding oil demand.
  • The impact of a possible European contagion from Turkey’s economic troubles and an escalating US-China trade war is not visible on oil demand data yet, but more of a worry that is being gradually priced in.
  • We have introduced a new band in this report, the “neutral to (price)-supportive” category. How should you read this? These are factors that, at least for the time being, not exerting any significant downward or upward pressure on oil prices, but could become activated to bullish if the headwinds from the political and trade tensions happen to ease or other bullish drivers appear on the scene, such as major unforeseen production outages. Another way to look at it is that until/unless these factors take a bullish hue, the weight of the bearish ingredients has grown since our last report, both in the immediate and short-term scenarios.

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Price rally is sticking but hinges on OPEC/non-OPEC discipline - January 2017

  • With global oil demand growth likely to be tepid again in 2017, the much-awaited market rebalancing hinges on suppliers honouring their commitment to cut.
  • OPEC is not only seeking resurrection, but will be making history if it manages to actually balance crude in the target $50-60/barrel range.
  • US shale patch activity and rig counts picked up through the second half of 2016, but does this mean tight oil production is poised for a rebound?
  • Downside risk to demand growth: Consensus estimates for a 1.35 million b/d rise in global oil consumption this year might be overshooting.
  • A double whammy from rising crude prices and a stronger US dollar to emerging economies could dent demand growth in major consumers such as China, India.