1 July 2020
- Our latest assessment for short-term supply conditions turned bearish. Refinery outages for both the main importing countries (i.e. Japan-South Korea-Taiwan) as well as exporting countries continue to increase. This would on one hand reduce the reliance on imports while also encouraging high exports at the same time. These are all price negative developments. Our implied forward supply indicator continues to show a steady increase in supply which reaffirm the earlier observation. Our implied inventory index oscillator continues to build which is expected to drag on prices.
- We turned bullish on short-term demand conditions. Petchem margins continue to climb as with the return of downstream demand as end-users are able to pass on the higher feedstock prices. As a result, we pickup further improvements in forward demand conditions which we expect to continue to support the market. Notably, our implied LPG-Naphtha substitution indicator too turned bearish, as the earlier strength in the LPG market looks to dissipate. This weakness is expected to spill over to naphtha.
- Our short-term macroeconomic view is bearish. Short-term lending conditions continue to tighten which would not be supportive of current prices. Our proprietary FX currency model remain bearish as the recent USD weakness continues to abate. The previously firm gasoline margins continue to decline as the combination of stronger crude prices as well as worries of a potential second wave of virus infections eroded margins. This would take out one of the key supportive drivers that had been in place for the last few weeks.