18 March 2020
- Crude oil supply kept rising and the price reacted accordingly. Despite Russia-S. Arabia price war, it should be clear by now that this strong surge in supply is not purely down to growth in supply at origin. The reason is equally trivial – demand has dropped well below its seasonally adjusted trend.
- Demand remains weak which is best seen in the negative refinery margins which became even more negative during the collapse of the crude oil price. This is a clear and worrying sign that refiners are increasingly unable to pass costs downstream. Forward demand is still pointing towards very different picture as we notice abnormally high intensity of buying on the physical market. It is difficult to assess at this point if this activity is down to speculative accumulation of inventory (market structure incentivizes such thoughts)
- Our short-term macroeconomic view remains strongly bearish. The signals from our FX model imply increasing downward pressure on the price thanks to growing incentive of the producers to push more oil to the seaborne market. Data like this makes us question the real motives behind the apparent price war between Russia and S. Arabia.