10 May 2019
- We continue to believe that there are signs to suggest we are entering a period of looser global oil supply. The combination of a renewed pick up in inventory, abnormally low imports and stubbornly high US exports, as well as record Russian exports, are key parts of our argument. For example, our proprietary Utilization of Inventory Capacity Index indicates the gradual re-appearance of tighter inventory capacity. Our concern is that the inventory increase is not a result of strong demand but rather a function of abundant supply.
- Our short-term demand assessment is turning increasingly bearish, even if our expectation for an uptick in demand in March and April actually materializes. The prospects for the next 10 weeks appear a lot less bullish. Another concern is the deterioration of refinery margins which have started to have an impact on the amount of idle refining capacity.
- Our short-term macroeconomic view has also deteriorated. Our model is picking up bearish signals from the currency markets. Judging by the past performance of this particular variable, we should probably pay attention to it. We treat the speculative money flows into oil with caution as this is more often than not a price-lagging piece of information. On the other hand, we suggest that attention is paid to the energy intensity of key oil consumers