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Fundamental Forecast for : Neutral

FUNDAMENTAL CRUDE OIL TALKING POINTS:

  • The ONE Thing: Supply risk has jumped back into the picture. After multiple weeks of weakness, there is a clear risk arising that supply on a wide scale could be short of demand as Iran sanctions will limit their exports to the world stage.
  • A weaker US Dollar on the back of Trump criticism of the Fed helps to strengthen the recovery in Oil
  • Per BHI, U.S. total rig count dropped to 1044 from 1057; Oil rigs drop by 9 to 860
  • Next week shows OPEC Committee meeting to start the week alongside an Offshore Northern Seas Conference that kicks off in Norway.
  • The technical picture warrants favoring a bullish continuation is in play after pivot off $63.97

    • Oil’s longest losing streak in three years of seven straight weeks of negative returns came to an abrupt end last week. The re-emergence of a supply shock where demand far exceeds the available oil returned to the market this week with the Dallas Federal Reserve given credence to the view that the next big price shock is likely higher, not lower.

    Saudi Shelves IPO With Oil Above $75, Dallas Fed Sees Upside Shock Risk

    The chart above shows the premium demanded in blue for the December 2018 WTI contract over the December 2019 contract. Given the homogeneous properties of oil, a premium shows up when there is a perceived benefit to carry that exceeds the costs (insurance, storage, etc.) of carry, which would naturally help to support the front-month oil contract price in orange as we’ve seen.

    While supply has been rising now, there remains little evidence that global demand is set to weaken. Adding to the increasingly supported outlook for crude is the weakening US Dollar, which dropped and continued to do so after US President Donald Trump came out this week with a criticism that his pick for the Fed Chair, Jeremy Powell has failed to provide cheap money to the US.

    Another key story is the shelving of the world’s largest anticipated IPO, Saudi Aramco, which Mohammed bin Salman (MBS) tagged with a $2 Trillion valuation. The shelving may have to do with the need not to dilute ownership as oil has rebounded, and may continue to do so.

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