6 March 2019
- In our last research note we wrote: “Unfortunately for the bull camp, the forward supply of crude oil is showing signs of increasing”. Our expectations have been met as supply continues to increase. Russia for example continues to push out more oil than anything recorded in recent years. Their exports in January and February are respectively 3.6% and 6.3% above last year. The USA is another good example of oil flooding into the spot market. We also expressed concerns about supply increasing at a time when the inventory cycle is reversing.
- Our expectation for an uptick in demand in January failed to materialize. Instead, the demand spike was recorded in February. After all, this was not surprising if we consider the fact that profit margins were strong. However, active refinery capacity contracted which failed to explain the strong demand data. We expect the demand spike will be short-lived. In fact, we are seeing contraction during weeks #9-10.
- Our short-term macroeconomic view remains firmly bearish. The Currency Impact Index deteriorated reflecting eroded purchasing power of key oil consumers. Short-term trade finance did not contract but it remains well below last year and our own estimates for February and March. The only cautiously positive macro indicator in the model is our proprietary Money Flow Index as displayed on the chart below. There is clear net in-flow to the oil market which is supportive for the price at current levels.