OIL: lying low

OIL: lying low

2020-03-27 • Updated

Prepare the stage

You cannot avoid the feeling that something is lurking in the oil market. WTI at $22 per barrel, Brent at $25, diminished fluctuation… Some will say oil is just “tired” of moving and wants to rest. In the end, the weekend is coming. But where will it go? And what’s behind the scene here?

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MbS

No, that’s not a new oil company. Mohammed Bin Salman, the Crown Prince of Saudi Arabia and its de-facto ruler is also known as MbS. He will be saying his word on crude supply next week: 31 March is the last day of the current term on agreed oil supply quantities. His last announced plans were to increase Saudi Arabia’s exports to 12.5mln barrels per day.

Russia

Russian officials previously informed that they would be ready to increase the supply through Rosneft by 300,000mln barrels per day in response. Now, as little as spare capacity seems in comparison to that of Saudi Arabia, that is not that crucial: Russia’s main weapon is not adding new supplies but rather holding on to its current level. Tactically, Russia is in a defensive strategy with the objective to hold the market, while Saudi Arabia is on the offensive with the objective to conquer the market; European market, specifically. Tactically, the one who attacks is the one to bring more firepower.

Stores full

Saudi Arabia offers huge discounts on its crude and huge quantities. No one can counter that. But everything gains value in the context of the situation. What is the context now?

With 100mln barrels of oil pumped daily, there is 20% oversupply at this rate. Oil tanks are so full that there is nowhere to store it. In this context, factoring in demand 20mln-bpd lower than the recent levels brings to the conclusion that it doesn’t bring too much advantage to Saudi Arabia to offer something that will surely be over the top and not required in the nearest future, and even if it was, there will be no place to store it.

What will it be then?

No one really knows. Here are some of the fresh headlines though.

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It looks like observers have more faith in the post-virus global economic recovery than in the oil markets’ nearest future. We will see on April 1. As some observers mentioned, $3 per barrel is not an impossible scenario now. Either way, you can make profits on that – just watch the moment.

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