Feisty oil in the face of global growth concerns

Week over week to Friday Brent crude fell back 0.3% to $70.62/bl along with a global equity sell-off of 2.6%. The sell-off in oil was thus very mild versus the general bearish market sentiment. Usually the front end of the curve is the most reactive part of the curve but last week the longer dated contracts actually sold off a little bit more than the front end (5yr minus 0.7%).

Not even the decision by the US to slam 25% tariffs on all goods from China has been able to push oil lower. This morning Brent is ticking 0.5% higher at $71/bl while the S&P 500 is sinking 1.1%.

The oil market is getting very bullish signals from spot prices at the moment which are countering the growth blues from the escalating US – China trade war.

The front end of the Brent crude oil curve is bending into sharper backwardation with the 1 month contract trading at a premium to the 3 mth contract not seen since 2014.

For now US sanctions towards both Iran (zero-waivers) and Venezuela (supply in free fall) together with a few other supply disturbances (Russian oil contamination, force majeure at Nigeria Nembe Creek terminal) will likely hold the physical oil market in a tight grip with a larger bullish magnitude than softer global growth. Bearish winds from the equity market will however hit the oil market with sell-offs in periods.

Ch1: Brent 1mth minus 3mth contract in USD/bl at highest since 2014 as the front end of the Brent crude oil curve is bending into increasingly sharper backwardation reflecting a tight physical market