Strategic Trends Results

  • Oil prices are still only in the $30s per barrel, for both WTI and Brent. Yet, the current level feels firmer than the same prices in mid-March and early April, when the market was seeing demand quickly dropping. A key part of the turn in the market is improved visibility on supply falling enough to catch up with demand (which is on an uptrend). In addition, the fading narrative of storage overflowing has helped. Demand recovery and inventory draining should push prices into the $40s/bbl in the second half, but working off 1 billion-plus barrels of oil/product stock builds caps upside beyond that.
    Wed, May 27, 2020
  • Oil markets have shrugged off the historic Opec-plus deal, instead preferring to focus on the ongoing physical market carnage and storage issues emerging all over the world. Opec-plus will have to prove it can follow through on announced commitments. We see both compliance leaders (Saudi Arabia, GCC allies, Russia) and laggards (Iraq, Nigeria, Mexico, Kazakhstan). Potential supply returning from Iran, Libya and Venezuela are a threat over the medium term, but key G20 countries US, Canada and Brazil are expected to chip in 3.7 million barrels per day of cuts, which we believe can be exceeded. We see oil prices moving back to the $30s per barrel in a month. Many variables impact the path back to the $40s/bbl in the second half of the year, along with a demand recovery.
    Wed, Apr 15, 2020
  • After many days of difficult deliberations, the Opec-plus group ratified an historic 9.7 million barrels per day output cut deal. Yesterday’s announcement may serve to prevent a total collapse of the oil market, but we believe the currently treacherous physical market will continue to weigh in April. The cuts do not begin until May 1, and any market re-tightening is dependent on summer demand recovery. Key variables in the near term include compliance from Opec-plus states, as well as the pace of supply falls in non-Opec countries. We remain skeptical that the full magnitude of cuts will be achieved, but demand will enforce fairly decent compliance. We see an oil price improvement in a few months, with a path to $50-60 per barrel possible into 2021 requiring support from both sides of the ledger.
    Sun, Apr 12, 2020
  • A lot is about to change over the next few days. Unprecedented demand loss is leading to extraordinary discussions not just within the core Opec-plus group, but a broader set of oil producing nations. How these meetings develop will go a long way toward determining whether prices have the privilege of staying in the $30 per barrel range or have to fall further to force action. Regardless of outcome, the immediate term will be dictated by severe physical market stress. The discussions underway are fighting this for now, but we also believe that a pivot to prospects for market balances over the course of the year will be important to follow even in the coming days.
    Wed, Apr 8, 2020
  • The oil market is currently facing some of the largest dislocations it has ever seen for demand, and is soon about to see major shifts on the supply side as well. Please join us in discussing our latest thoughts on how the market gets out of this consumption hole, as well as the latest and ongoing developments with Opec++ and the path forward for potential global producer cooperation.
    Wed, Apr 8, 2020
  • President Donald Trump lit a fuse under oil prices yesterday, throwing out large numbers for potential supply reductions of at least 10 million barrels per day. The details were hazy, but Energy Intelligence reporting suggests that while there are no signs of Riyadh and Moscow being close to any action, there are certainly signs of greater communication and appetite to pull together a globally coordinated cut. This “Glopec” concept is a noble one, but we see many logistical hurdles to overcome, the largest being how to get the US to participate in a meaningful way. We are watching for signs of progress—we wrote yesterday that a market-driven supply rejection was coming anyways, so various pieces under the guise of a coordinated cut could very well come together.
    Thu, Apr 2, 2020
  • In an oil market currently facing a historic level of imbalance and oversupply, the focus has largely been on the magnitude of the demand collapse as the coronavirus pandemic has spread around the world. We continue to sharpen our impact on consumption, but we believe it is now critical to focus on the effects that the global stoppage will have on oil supply/production. Sizable adjustments are underway from non-Opec sources (US, Canada, Brazil and elsewhere) to more than match waning interest in Opec volumes—in total, we see up to 7 million barrels per day less supply by June compared to expectations/aspirations, even factoring in storage in China and other regions. This could set the stage for a degree of oil market/price improvement in the second half of 2020. There will also be a more prolonged period of underinvestment that will last beyond 2020 that sets the stage for oil prices to return to $80/bbl or higher in a few years.
    Wed, Apr 1, 2020
  • Neither Russia nor Saudi Arabia has shown any signs of blinking on the oil market standoff that emerged from the Opec-plus meeting earlier this month. Politics, personalities and egos remain at the center of the dispute, along with an unprecedented demand shock that neither side (nor anyone in the global market) was quite prepared for. Given the magnitude of the oil market downturn (we see prices possibly below $20 per barrel for Brent), both sides are on the verge of severe economic stress. Russia has the ability to wait out the standoff a little longer, given favorable government break-evens. Saudi Arabia will have to make greater adjustments with a prolonged downturn, and a path toward resolution with Russia may have to be led by King Salman. While both sides have moved slowly, we believe the collapse in demand will force their hands.
    Mon, Mar 30, 2020
  • The oil market is just now coming to grips with the severity of near-term demand destruction as caution over the coronavirus pandemic forces billions of people to simply stay at home. Our latest figures call for a year-on-year decline of ~7 million barrels per day in Q2’20, following a ~5 million b/d fall to close out the current quarter. Rising unemployment, the shutdown of businesses and a hit to key industries will likely persist well into the second half of 2020: Q3 oil demand will also be down year-on-year, but there is an opportunity for consumption to turn positive in Q4. We also anticipate key signposts in the second half of the year that could shape the longer-term demand outlook, such as more permanent downshifts in consumption for air travel, but offset by a potential uplift in road transport as well as the petrochemicals segment.
    Thu, Mar 26, 2020
  • New US sanctions, the coronavirus and the oil price rout are devastating Venezuela’s energy sector and the Maduro regime just as the outlook was improving. Sanctions on Rosneft subsidiaries exporting crude have led clients in India and China to re-evaluate their purchases, which will hit production as storage tanks fill forcing shut-ins. As it stands, it is hard for the US to cut off all exports as select foreign firms continue to operate and Caracas finds new ways to move crude, so an escalation in sanctions pressure is possible. Making matters worse, the coronavirus has led to a nationwide quarantine and production shut-ins, while the oil price drop and large discounts are pushing prices below production costs. In our revised forecast, we see Venezuelan output falling below 600,000 barrels per day by year’s end—down from 750,000 b/d in February—but if the US escalates pressure even further, including ending waivers for Chevron, we believe output could fall below 350,000 b/d by December.
    Mon, Mar 23, 2020