Oil falls, FSC rises and much more

Oil falls, FSC rises and much more

It has been a very busy week! From calls of another Supercycle just around the corner to Brent barely holding on that $60 level and WTI falling below it this week. Commodity prices were indeed rising across the board – copper, grains, crude oil etcetera but we always called for the best approach which is cautious optimism.

Why did global oil prices took a steep way down this week all of a sudden? Well, it is how the paper markets behave. Sentiments, rather than the fundamentals, steer the prices in any particular direction. Before this week, the sentiment was of global economic recovery, re-openings hinting towards a rising oil demand in future and life could be seen coming back to normalcy. However, with the recent news of rise in COVID19 cases in Europe dashing all those hopes, the sentiments shifted and people realized the reality which wasn’t that rosy at all. Then there were some inventory build-ups, another bearish indicator to which markets reacted strongly. IEA also announced that there is enough oil supply in the world at the moment and that another commodities Supercycle looks highly unlikely; cementing the doubts of many.

However, fundamentals were always pointing out towards this direction. Margin debt has reached at record highs with a $154 billion rise in only past 4 months and compared to February last year the rise is 50 percent. M1 money supply is also extremely high and finally household debt has risen to $14.6 trillion increasing $414 billion in 2020 as people turned their attention to lease. Besides this, the fact that OPEC+ in its recent meeting, despite rumours of an otherwise strategy, rolled over their production cuts realizing that the physical market is not as tight as the prices/sentiments in the paper markets reflected.

The tail-risks are still not being payed proper attention such as the relation between U.S. and China. We believe that Biden administration isn’t interested in reversing all of Trump’s tariffs but that it also wants to be serious with China. I personally believe that another trade war or its possibility will be the trigger that will cause a steep sell off in global markets; especially oil.

In terms of other factors, such as and most importantly, oil demand, things have started to look uncertain once again as Europe struggles with another wave of COVID19 and with international travel looking almost impossible to recover let alone reach normal levels this year, oil demand will certainly come under pressure. Chinese refinery maintenance season and the fact that they have reduced its demand may also put further pressure.

Shifting to Frac Spread Count: this week the number came at 195, adding 14 week on week basis. As we mentioned in our earlier blog posts, the number is nearing 200.

To check out other exciting shows regarding the global economy, please see the videos here, here, here and here.

For an in-depth analysis of Oil Markets see the following segments: 1, 2 and 3.

Have a great weekend!

By: Osama Rizvi; Energy Market Analyst at Primary Vision Network