Analys
Brent crude tipping over the technical abyss


Brent crude ydy closed down 1.5% at $58.94/bl. That was the lowest level since early January, below the lows from June and below the technically important Fibonacci price level of $59.74/bl below which there is no real support before the $50/bl line. This abyss or lack of technical support below $59.74/bl has been high on the radar of many of our customers for a long time and now we have broken down below that level with an open abyss down to the $50/bl line.
Oil producers may pray that tight front end fundamentals and continued declining US crude oil stocks may save them but as of now the bearish and deteriorating global macro situation seems to have the upper hand, pushing lower and lower.

US crude oil stocks have now fallen 7 weeks in a row since early June with a total decline of 49 million barrels. API ydy released partial, indicative numbers pointing to yet another weekly draw in US crude stocks of 3.4 m bl, with Cushing crude stocks down 1.6 m bl, Gasoline stocks down 1.1 m bl and distillates stocks up 1.2 m bl.
So US crude oil stocks are likely to continue lower together with a range of other bullish elements: Mid-East geopolitical risk is likely to continue at an elevated level, OPEC+ will likely continue to hold back, US production growth will continue to slow further and refinery margins are likely to stay strong due to the IMO 2020 event. But the bearish macro sentiment still has the upper hand for now pushing lower.
Last time we were at the current price level in early January the spot market was plentiful but the market was optimistic of the future. Now the spot market is tight with both the Brent and WTI crude curves in front-end backwardation. But since the market is very pessimistic of the future macro situation and future oil demand it has pushed the whole front end of the crude oil curve lower so that backwardated part of the curve now is below the longer dated contracts.
This is unlikely to change before we either get a major outage of supply giving an even stronger bullish force to the front end of the market or the macro sentiment turns from a bearish trend to a bullish trend. A partial or full stop in the flow of oil out of the Strait of Hurmuz would be bullish supply event which undoubtedly would drive the front end to the sky. A full or partial resolution to the ongoing US – China trade war would definitely be a turn to the positive from the macro side.
For now the bearish macro sentiment continues to push down the whole forward curve for both Brent and WTI paying little attention of the tight front end of the market. The US Fed did not rescue the macro situation. It was not enough to change the direction of the cooling global growth trend. Instead Donald Trump has upped the US – China trade war making it all worse.
While slowing US crude oil production growth is good for the global oil market balance it is not entirely positive for Brent crude in the first round of events.
Much more US pipeline capacity from the Permian basin to the US Gulf in combination with slowing US crude oil production growth implies that Brent crude oil prices will move much closer to the WTI crude curve. I.e. global oil producers will lose the Brent crude oil premium over WTI which averaged $8.3/bl on average so far in 2019 and averaged $6.8/bl in 2018.
Lately we have seen marginal cost for transporting oil from the Permian to the US Gulf of $2.5/bl. So that is probably the Brent to WTI price spread we are heading towards.
The ongoing price dynamics shows how difficult it is for OPEC+ to prop up prices through production cuts in the face of cooling global growth. It was much easier when they initiated cuts in late 2016 with strong tailwind from accelerating global growth.
Ch1: The Brent crude oil forward curves in early January (green) versus now (yellow). Plentiful spot supply in January but coupled with a fairly positive view of the future. Today the spot market is tight in the front but the bearish macro sentiment is very bad. I.e. deep concerns for future demand is pushing down the whole forward crude curve
Ch2: Brent crude losing more and more of its premium over WTI. Here the spread between the two forward curves at the end of June versus the close yesterday. Brent had a premium of $6.8/bl in 2018 and $8.3/bl ytd average in 2019.
Ch3: Brent front month breaking down below the 38.2% Fibo level with basically open space down to the $50/bl line. I.e. Brent crude oil price is extremely vulnerable to the downside and to further deterioration in the global macro sentiment.
Analys
Crude stocks fall again – diesel tightness persists

U.S. commercial crude inventories posted another draw last week, falling by 2.4 million barrels to 418.3 million barrels, according to the latest DOE report. Inventories are now 6% below the five-year seasonal average, underlining a persistently tight supply picture as we move into the post-peak demand season.

While the draw was smaller than last week’s 6 million barrel decline, the trend remains consistent with seasonal patterns. Current inventories are still well below the 2015–2022 average of around 449 million barrels.
Gasoline inventories dropped by 1.2 million barrels and are now close to the five-year average. The breakdown showed a modest increase in finished gasoline offset by a decline in blending components – hinting at steady end-user demand.
Diesel inventories saw yet another sharp move, falling by 1.8 million barrels. Stocks are now 15% below the five-year average, pointing to sustained tightness in middle distillates. In fact, diesel remains the most undersupplied segment, with current inventory levels at the very low end of the historical range (see page 3 attached).
Total commercial petroleum inventories – including crude and products but excluding the SPR – fell by 4.4 million barrels on the week, bringing total inventories to approximately 1,259 million barrels. Despite rising refinery utilization at 94.6%, the broader inventory complex remains structurally tight.
On the demand side, the DOE’s ‘products supplied’ metric – a proxy for implied consumption – stayed strong. Total product demand averaged 21.2 million barrels per day over the last four weeks, up 2.5% YoY. Diesel and jet fuel were the standouts, up 7.7% and 1.7%, respectively, while gasoline demand softened slightly, down 1.1% YoY. The figures reflect a still-solid late-summer demand environment, particularly in industrial and freight-related sectors.


Analys
Increasing risk that OPEC+ will unwind the last 1.65 mb/d of cuts when they meet on 7 September

Pushed higher by falling US inventories and positive Jackson Hall signals. Brent crude traded up 2.9% last week to a close of $67.73/b. It traded between $65.3/b and $68.0/b with the low early in the week and the high on Friday. US oil inventory draws together with positive signals from Powel at Jackson Hall signaling that rate cuts are highly likely helped to drive both oil and equities higher.

Ticking higher for a fourth day in a row. Bank holiday in the UK calls for muted European session. Brent crude is inching 0.2% higher this morning to $67.9/b which if it holds will be the fourth trading day in a row with gains. Price action in the European session will likely be quite muted due to bank holiday in the UK today.
OPEC+ is lifting production but we keep waiting for the surplus to show up. The rapid unwinding of voluntary cuts by OPEC+ has placed the market in a waiting position. Waiting for the surplus to emerge and materialize. Waiting for OECD stocks to rise rapidly and visibly. Waiting for US crude and product stocks to rise. Waiting for crude oil forward curves to bend into proper contango. Waiting for increasing supply of medium sour crude from OPEC+ to push sour cracks lower and to push Mid-East sour crudes to increasing discounts to light sweet Brent crude. In anticipation of this the market has traded Brent and WTI crude benchmarks up to $10/b lower than what solely looking at present OECD inventories, US inventories and front-end backwardation would have warranted.
Quite a few pockets of strength. Dubai sour crude is trading at a premium to Brent crude! The front-end of the crude oil curves are still in backwardation. High sulfur fuel oil in ARA has weakened from parity with Brent crude in May, but is still only trading at a discount of $5.6/b to Brent versus a more normal discount of $10/b. ARA middle distillates are trading at a premium of $25/b versus Brent crude versus a more normal $15-20/b. US crude stocks are at the lowest seasonal level since 2018. And lastly, the Dubai sour crude marker is trading a premium to Brent crude (light sweet crude in Europe) as highlighted by Bloomberg this morning. Dubai is normally at a discount to Brent. With more medium sour crude from OPEC+ in general and the Middle East specifically, the widespread and natural expectation has been that Dubai should trade at an increasing discount to Brent. the opposite has happened. Dubai traded at a discount of $2.3/b to Brent in early June. Dubai has since then been on a steady strengthening path versus Brent crude and Dubai is today trading at a premium of $1.3/b. Quite unusual in general but especially so now that OPEC+ is supposed to produce more.
This makes the upcoming OPEC+ meeting on 7 September even more of a thrill. At stake is the next and last layer of 1.65 mb/d of voluntary cuts to unwind. The market described above shows pockets of strength blinking here and there. This clearly increases the chance that OPEC+ decides to unwind the remaining 1.65 mb/d of voluntary cuts when they meet on 7 September to discuss production in October. Though maybe they split it over two or three months of unwind. After that the group can start again with a clean slate and discuss OPEC+ wide cuts rather than voluntary cuts by a sub-group. That paves the way for OPEC+ wide cuts into Q1-26 where a large surplus is projected unless the group kicks in with cuts.
The Dubai medium sour crude oil marker usually trades at a discount to Brent crude. More oil from the Middle East as they unwind cuts should make that discount to Brent crude even more pronounced. Dubai has instead traded steadily stronger versus Brent since late May.

The Brent crude oil forward curve (latest in white) keeps stuck in backwardation at the front end of the curve. I.e. it is still a tight crude oil market at present. The smile-effect is the market anticipation of surplus down the road.

Analys
Brent edges higher as India–Russia oil trade draws U.S. ire and Powell takes the stage at Jackson Hole

Best price since early August. Brent crude gained 1.2% yesterday to settle at USD 67.67/b, the highest close since early August and the second day of gains. Prices traded to an intraday low of USD 66.74/b before closing up on the day. This morning Brent is ticking slightly higher at USD 67.76/b as the market steadies ahead of Fed Chair Jerome Powell’s Jackson Hole speech later today.

No Russia/Ukraine peace in sight and India getting heat from US over imports of Russian oil. Yesterday’s price action was driven by renewed geopolitical tension and steady underlying demand. Stalled ceasefire talks between Russia and Ukraine helped maintain a modest risk premium, while the spotlight turned to India’s continued imports of Russian crude. Trump sharply criticized New Delhi’s purchases, threatening higher tariffs and possible sanctions. His administration has already announced tariff hikes on Indian goods from 25% to 50% later this month. India has pushed back, defending its right to diversify crude sourcing and highlighting that it also buys oil from the U.S. Moscow meanwhile reaffirmed its commitment to supply India, deepening the impression that global energy flows are becoming increasingly politicized.
Holding steady this morning awaiting Powell’s address at Jackson Hall. This morning the main market focus is Powell’s address at Jackson Hole. It is set to be the key event for markets today, with traders parsing every word for signals on the Fed’s policy path. A September rate cut is still the base case but the odds have slipped from almost certainty earlier this month to around three-quarters. Sticky inflation data have tempered expectations, raising the stakes for Powell to strike the right balance between growth concerns and inflation risks. His tone will shape global risk sentiment into the weekend and will be closely watched for implications on the oil demand outlook.
For now, oil is holding steady with geopolitical frictions lending support and macro uncertainty keeping gains in check.
Oil market is starting to think and worry about next OPEC+ meeting on 7 September. While still a good two weeks to go, the next OPEC+ meeting on 7 September will be crucial for the oil market. After approving hefty production hikes in August and September, the question is now whether the group will also unwind the remaining 1.65 million bpd of voluntary cuts. Thereby completing the full phase-out of voluntary reductions well ahead of schedule. The decision will test OPEC+’s balancing act between volume-driven influence and price stability. The gathering on 7 September may give the clearest signal yet of whether the group will pause, pivot, or press ahead.
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