7 November 2018
- As discussed in our previous research note, the supply of crude oil continued to increase throughout October. We see no reason for the supply shock to weaken in the next 1-2 weeks, however there are questions about oil rig productivity. Spot supply (2 weeks out) has increased after 2 weeks of contraction. Forward supply (4 weeks out) on the other hand is showing signs of a gradual contraction, which will likely apply positive pressure on prices towards the end of November.
- Demand for oil in the USA has improved. This improvement has followed a period of sharp, and somehow difficult to explain, lower demand. Our view on bearish spot demand in early October was partially based on weak refinery margins and high outages. The situation for both metrics has evolved and today we see spot demand re-emerging (admittedly from a very low level). Forward (4 weeks out) demand remains subdued.
- Our macroeconomic view remains firmly bearish. Short-term credit conditions have deteriorated which continues to weigh heavily on prices. It is worth mentioning that we expect an increase in liquidity injections in China from November onwards which will provide some support to activity and prices. The strength of the USD is finally catching up with the commodity markets. The impact from imbalanced forex markets will likely persist into November and early December.