29 January 2020
- Crude oil supply continues to increase, with the market following closely. It is increasingly evident that this strong surge in supply is not down to grow in supply at origin. The reason is likely to be equally trivial – demand has dropped well below its seasonally adjusted trend. We continue to expect high OPEC compliance rate. Intervention is also likely if the oil price does not stabilize above mid $50/barrel.
- The short-term demand bounce back in late December proved to be short-lived. Our short-term demand assessment continues to be outright bearish as margins contract further. The fact that the refiners are not able to improve margins with oil price down 15% in 20 days suggests that the downstream demand is particularly weak. Forward demand is not constructive for stronger prices which in our view will mean further attempts to control supply.
- Our short-term macroeconomic view has improved only marginally. What bothers us continuously is that the downward pressure on the oil market from the currency markets remains in place. The balance between supply, demand and macroeconomic factors of the crude oil market price formation continues to evolve. Macro is again in fashion with almost 50% of the total, followed by supply at about 30%. This is in start contrast with the end of last year when supply-related considerations ruled the oil market.