19 December 2018
- The supply of crude oil on the international market is showing signs of forthcoming reduction. The most concerning short-term development for 12 consecutive weeks was the fact that inventory capacity utilization (CU) continued to grow. We interpreted this as outright bearish development at times of weak downstream demand. CU has now retreated which should be interpreted as a short-term bullish sign. Our proprietary systematic fundamental model is picking up decisive shift towards lower supply for weeks #52 to #4. The market is expected to react on this imminently.
- Demand for oil remains abnormally weak. Our current view remains bearish. The conclusion is partially based on weak refinery margin trends for both Europe and Asia. Our expectations for an uptick in demand in December have so far been justified but the magnitude of the increase does not seem to be sufficient to offer much needed support to the price.
- Our macroeconomic view has gradually evolved from firmly bearish to more neutral. Even if the strength of the USD has finally caught up with the commodity markets, our model has identified number of price positive developments which are likely to affect the price formation in early January. For example, the current short-term credit conditions remain weak but recent injections of credit in China across different debt maturities offer support to our view for weeks #50-51 and #1-4. Last but not least, the Energy Intensity Index has rebounded which is indicating improving demand.