10 September 2020
- We continue to see growing intensity on the selling side on the physical market. This trend was well documented in the previous two research notes. This short-term supply shock is the key driver behind the market weakness in recent days.
- The rebound in global economic activity which explained to some extent the firm oil price during May-June period has stalled in July and August. This is partially down to seasonal factors as well as the resurgence of COVID-19 restriction measures. Our long-term forecast is discussed on the previous page. Here we share observations which might affect the short-term market dynamics. One such factor is the amount of idle refining capacity. Our proprietary calculation shows that capacity is being added back at higher rate. The implications for demand mid/late Sept are positive.
- The macro environment for crude oil continues to show weakness which is in line with our previous publications. On the positive side is the process of credit creation which is supportive of the prices in the short-term.. Unfortunately for the bull’s camp, we have also not seen material support from the weak USD. This may be down to the inherent delay in the transmission mechanism of the global physical commodity trade system. We expect support to emerge mid/end September.