9 October 2017
- As far as we are concerned, supply remains high with plenty of Russian oil appearing on the seaborne market during weeks #39-42. Unless OPEC and their partners agree on further cuts, supply is unlikely to drop due to consistent de-stocking efforts and increased output in USA, Russia and some OPEC members. This is evident from the figure below where the pressure of excessive supply on the physical market is calculated. There are signs that the aggressive de-stocking cycle is moderating which, if established as a new trend, will be price positive development.
- Demand for crude oil has improved partially on the back of a very strong recent macro environment. Profit margins remain healthy which is a price supportive development. Also, we cannot/should not ignore some forthcoming seasonal upward pressure in the operating refinery capacity once the maintenance season is truly over.
- Our macroeconomic view remains bullish but with weaker conviction. Money market liquidity is still supportive of trade but we see early signs of a credit liquidity slowdown. It is difficult to say when exactly the negative pressure will materialize as we are missing a few more data points for weeks #40-41. Energy intensity in key industrial economies is still running high, which is likely to lift the demand in the short to medium-term. Our proprietary currency impact index has weakened, possibly reflecting the recent USD strength.