Oil commentary - 26 May 2020
Morning all, Eid Mubarak and I hope everyone had a nice, long weekend. Brent is trading this morning at $36.37 up 0.84 and WTi is up 1.25, trading at $34.50. I'm trying to work out where to start this morning without sounding negative. So, I think I'll start with a joke - "I was in the army once and the Sergeant said to me: 'What does surrender mean?' I said: 'I give up!". Ok, now that's out of the way, let's talk about this oil market. So, both Brent and WTi look firmly grounded in the 30's and $40 doesn’t look far away. All of this on the back of renewed demand being primarily driven by an increase in gasoline demand. Niceeee. Memorial Day weekend marks the start of US driving season and indeed Summer. The thing is though, how else are you supposed to get around? Public transport is being advised against, international travel is still locked down and in fact is being squeezed even further with new 14 day quarantine regulations, so the only way to get about is to get in your motor and visit the seaside. But when you get there, stay in your car, don't share your Thermos flask with anyone and sit as far away as possible. I think this year will be a good one for gasoline, and let it have its moment because it has been persona non-grata for a while now especially with Greta lurking in the background and Elon Musk and his algebra named child ready to snap up motorists switching to electric vehicles. It's like we've gone back 30 years. Everyone is now baking bread, reading more, there's no football on apart from a match on Sunday, people are thinking about going camping. I draw the line at watching reruns of Hi-de-Hi though, that's still as rubbish as it was 30 years ago. Life has taken an unexpected twist and it has yielded a much simpler approach to the things we took for granted. This will eventually manifest itself down to oil demand. It is still too early to decide whether demand is back, of course it is better that where it was, but can we call it this early to say we are on a path to recovery? The thing is though is that what will new demand forecasts look like? Like I said, gasoline demand will be good, but jet fuel will continue to remain weak and so possibly will fuel oil. I read an excellent article yesterday where Dr Doom was quoted. No not the baddie from Spiderman, but Nouriel Roubini, who predicted the 2008/9 financial crisis. He said when asked what recovery would look like "…the (US) unemployment rate is headed to 25 percent. Maybe we get lucky. Maybe there’s an early recovery, and it only goes to 16 percent. You want to come back to work at my restaurant? Tough luck. I can hire you only on an hourly basis with no benefits and a low wage. That’s what every business is going to be offering. Meanwhile, many, many people are going to be without jobs of any kind. It took us ten years — between 2009 and 2019 — to create 22 million jobs. And we’ve lost 30 million jobs in two months.". Sobering. Good day and week to all.