Oil commentary - 27 August 2024

Well hello there, you little oil legends. It’s the 27th of August, and can you hear that? Listen, shhh, can you hear that? Shhh. Listennnnnn. EXACTLY! NOTHING! Haha!! Nothing!! Not a child in sight!! I have my time back, and some biscuits left at the end of each day. I’m joking, of course; I love my children dearly. It’s just that moment when you can’t believe you have time back in your day, and then you do the whole resentment thing of missing them and can’t wait to pick them up from school. Fast forward two minutes into said car journey home, and you’re overwhelmed with stories about broken water bottles, jam-stained school bags, and several new classmates whose names you won’t remember.

ANYWAY, more anecdotes you cry! Let’s talk about all things oily, shall we? Brent is trading this morning down 0.11 at $81.32, and WTI is trading at $77.21, down 0.21. It has been an interesting summer, hasn’t it? And no, not because of the success of the Paris Olympics. Or England narrowly missing out on the EUROs. Or the start Arsenal have made to the EPL. But in the oil space, many, many yeahs and nahs. Ultimately, if we look at the middle of June as the start of summer, Brent was trading at around $81.60. At the end of August, we are trading at $81.30.

Now, I’ll dig into more detail about the reasons for highs and lows (the high in said summer period being $87.95 and the low being $75.05). The highs? Well, tensions in the Middle East have clearly been dominating headlines, and one could argue tensions right now are at one of the more elevated levels we’ve seen. Yet Brent is lower than it was earlier in the summer, when tensions weren’t quite as high. This really comes down to one reason, and that is that come October, OPEC+ have the delicate card to play of whether or not they will go ahead with planned increases in oil production. Markets are watching this very closely.

Yesterday, we actually saw Brent rise dramatically, mainly due to (unconfirmed) reports of a total shutdown of Libyan oil production. Let’s talk about the reasons for the lows. Well, I would attribute this to two things: 1) when tensions have dissipated somewhat, the reality of supply and demand fundamentals once again comes into focus, and the market is anticipating a surplus early next year, with prices reflecting accordingly; and 2) the massive sell-off in the tech sector for a few days this summer. And when I say, “for a few days,” I do mean “a few days.” On that note, Nvidia results are due out tomorrow. Let’s see how the market reacts if they surprise to the upside.

All in all, and whilst it’s not over, the “summer of discontent” hasn’t materialised as many thought it might. I would argue that going into the autumn period, or “fall” if you’re that way inclined, will be centred around one thing: the speed and timing of those all-important Fed rate cuts. Hmmm. As always, keep your eyes on the data for clues to that.

Good day, and have a great rest of the week, all.

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