Oil commentary - 15 May 2020

Morning all and Happy Friday. Brent is trading this morning up 1.08 at $32.21 and WTi is trading up 0.93 at $28.49. Another week of 2020 passes us by with a puff of air and Brent is happily snuggled against the comfort bosom of mid 30's. Mid 30's. Quite an achievement considering at the end of April Brent was trading in the teens. Let's not forget though that just over a month ago Brent was trading at similar levels to where it is now, so was it only a month of low prices we can expect to see? Before we get into that, let's get a joke in "This bloke came up to me and said 'I'm going to chop off the bottom of one of your trouser legs and put it in a library'. I thought 'That's a turn-up for the books.". Excellent. OK so Brent in the 30's - not bad. WTi mid 20's - pretty decent. Will it stay there though? This is the question. It's simple maths that means if there's less of something and more people want it than they did before then the value of something increases. My issue is, are those people actually there than they were before? China is slowly getting back on its feet but let's remember that the COVID-19 outbreak started in China and they are around 2 months ahead of the outbreak than anyone else. International air traffic is still ground to a halt with apparently no end in sight for it to come back unless you want to pay 10,000 dollars to queue for 5 hours, sit 3 metres away from someone whilst you wear a mask and try and work out how you can possibly stuff a cashew nut under that mask without breaching protocol. Tricky. I said yesterday that the world is going to change as we know it and perhaps historical data on demand forecasts will need to be adjusted, people will not fly as much and book scuba diving trips in Bora-Bora, rather they will jump in their car and take in the sights of something closer to home so bad for jet demand and your HiltonHonours points, but good gasoline demand and Center Parcs. Things will shift and we will see values of refining margins shift as the world builds confidence on travelling and getting out and about. What else is going on? Well, the EIA have said that US production is going to drop in 2020 and 2021. No surprise whatsoever there. However, they do forecast that production in 2020 will still average 11.7mnbpd in 2020. Hmmmm, let's see how much further the rig count, if at all, drops later. Have a great weekend.