7 June 2019
- Nothing has changed in our supply-side view for crude oil since our last two publications in May. There are signs to suggest we are in a period of looser global oil supply. The combination of a renewed pick up in inventory, abnormally low imports and stubbornly high US production and exports, as well as an anticipated spike in Russian exports during weeks #27-28, are key parts of our argument. The oil market in the last 2 days has been heavily influenced by the usual talk from Russia and key OPEC member states which aims to prop up the prices.
- Our short-term demand assessment appears more balanced than what it was at the end of May. The positive change can be explained by the improved profitability of refineries and subsequent increase in their capacity utilization. The result is decent uptick in demand for this time of the year. Our forward demand view is far less pleasing for the bull’s camp as we still expect sharp deterioration starting from next week. Needless to say, the situation is fluid and it requires further updates as the +20% collapse in the oil prices is likely to create some fresh demand.
- Our short-term macroeconomic view remains bearish. Signals from the FX markets have not been price supportive for 2 consecutive weeks. The latest reading of our proprietary FX Impact Model still points to further losses for the oil market in the second half of June. On the bright side, we would like to mention the increase in short-term lending. Our Money Market Liquidity Index is now bullish suggesting that additional liquidity is being injected. We expect the physical crude oil market to benefit from this process.