21 January 2020
- Crude oil supply increased substantially since mid-last week and the reaction of the market followed closely. Flow out of the USA is largely to blame. It was so high that it was not offset by the decline elsewhere, most notably Russia and Saudi Arabia.
- The short-term demand bounce back proved to be short-lived. Our short-term demand assessment is outright bearish as margins contract, and with them the idle refinery capacity continues to increase. Poor margins during times of relatively low oil price from both inflation-adjusted and 10 years average basis only come to support the argument in favor of low underlying demand.
- Our short-term macroeconomic view is beginning to improve. The change of heart comes from the strong reading of our Short-term credit Liquidity Index. What bothers us the most this week, is that the downward pressure from the currency markets is again intensifying. The reason is mainly weaker domestic currencies of crude oil producers which is directly linked to the sudden rise in supply.