[Editor’s note: This report is an excerpt from the Stratas Advisors weekly Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.]
The Energy Information Administration (EIA) reported last week total U.S. refined products consumption at 19.6 million b/d, which has finally reached the levels of the five-year historical range.
If this price level occurs prior to winter’s arrival, it could minimize the impact of a potential upcoming second wave on the oil markets. Before this second wave crude prices could see a last boost that can bring the oil sector one step closer to normalization, and the evidence to support this is being provided by the U.S. consumer.
Global supply continues to be a force that support crude prices, as the extended OPEC+ cartel implements production cuts with a high compliance degree.
U.S. crude inventories continue to decline falling by 4.7 million barrels during the prior week, even with U.S. production increasing by 100,000 bbl/d (but still 1.70 million bbl/d the production level of the previous year).
Consequently, for this week global supply is expected to be a positive variable for oil prices.
Geopolitics – Neutral
The heightened tensions between China-India and the U.S. are signs of the long-term structural change affecting the global economy—and has less of a short-term impact.
For this week, geopolitics is expected to have a neutral impact for oil prices for this week.
The status of the global economy has not changed significantly over the last week. The last unemployment claims report in the U.S. included over a million people reaching out for benefits, which is an indication that some sectors have still way to go in order to recover normalcy.
For this week, the global economy is seen as having a negative contribution for oil prices this week.
U.S consumption continues to perform stronger than expected for another month, despite concern of infections in several States. In a similar fashion oil demand is poised to continue recovering in China and several European countries.
We see a neutral contribution of demand to global crude prices, although WTI prices are expected to perform with a more bullish demeanor than Brent prices, on the heels of a more positive US scenario for refined products demand.
An improving margin environment the refining sector is viewed as a positive for oil prices, as additional purchases from the refining sector can maintain crude nominations on a stable level, thus underpinning prices.
Oil Trader Sentiment—Positive
Trading activity for oil and products markets did not change versus last week, when considering both futures and options, except for an increased participation in the RBOB contract. Open interest of the gasoline contract edged up by 4.4% versus last week, underpinned by stronger than expected U.S. consumption.
About the Author:
Jaime Brito is vice president at Stratas Advisors with over 24 years of experience on refining economics and market strategies for the oil industry. He is responsible for managing the refining and crude-related services, as well as completing consulting.
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