Oil commentary - 3 July 2020

Morning all, Happy Friday and a very Happy Independence Day for tomorrow to our friends across the pond. Brent is trading this morning at $42.71 down 0.43 and WTi is trading down 0.42 at $40.23. Another nice week for crude oil prices as Brent and WTi continue to consolidate above $40 per barrel. Just. The rhetoric recently has been one of just how resilient global markets are being against cases of Covid-19 that continue to increase. The thing is though that nobody wants to acknowledge this fact, and hence the reason why oil markets are not yielding to, arguably, some pretty grim truths. How much longer will this continue? Well, again, as I have been saying, the rally has been leveraged against curtailment of supply, with a bit of demand coming back thrown in. With prices settling in the $40 - $50 range it is only a matter of time before supply does start coming back, and before the historic production cuts OPEC agreed will start to wind down. Then what happens? I'm assuming that when the cuts were put in place the cartel got together and forecast that by the time the cuts were supposed to be wound down that demand would come back and offset the two. Has this happened? No, not really. Will demand ever come back to what it was pre Covid-19? Well, according to Citibank overnight "Not only will the world have lost 2+ years of demand growth, but the elasticity of oil product demand to global GDP will take a step-level change lower,". This at the same time when Citi were quoted this week as saying the oil rig count could increase to 600 later in the year from 200 now. So, more supply and lower demand is what we can expect? Is it just me or have I heard this before? Enjoy your apple pie at the weekend and keep safe. TTFN.