28 August 2020
- We remain of the opinion that the increase in supply is unlikely to abate soon as the economics of extraction are supportive of more aggressive rigs (onshore and offshore) capacity utilization rates. This is valid for both USA and RotW origins of production. Selling pressure on the physical market is expected to intensify within 2 weeks which will put some downward pressure on prices – see Chart of the Week for further details.
- The rebound in global economic activity which explained to some extent the firm oil price during May-June period has stalled. This is reflected in various demand-specific metrics such as refinery margins and physical market net long positioning. Above all is the actual estimate for weekly spot global crude oil demand which continues to flatline. This proprietary metric for Implied Spot Crude Oil Demand describes best the oil market behavior in the last 6 months. The spike expected during week #40 (1 month ahead) is worth monitoring as it may result in temporary support to prices.
- The macro environment for crude oil continues to show weakness which is in line with our previous publication. Our concerns for some erosion in crude oil demand in July and August materialized. On the positive side is the process of credit creation which is supportive of the prices in the short-term.