Is oil a "Coiled Spring"? BofA Comments are interesting

[dan_s]

10-22-2020 from Bank of America Equity Research

Soft equity markets continue to weigh on oil markets through an otherwise directionless shoulder season and after effects of hurricane Delta. Absent a post-COVID demand recovery , oil is stuck in a range managed on the downside by OPEC+ and capped on the upside by an inventory overhang being slowly worked down. But we continue to believe the foundations for a recovery are building – starting with the continued support from OPEC+ whose latest JMMC on Oct 19th gave the clearest signal yet that planned increases in production from Jan 1 2021 may be deferred. Near term US EIA weekly data remains the primary barometer for the health of oil markets. This week’s 1mm bbl decline from commercial oil storage was slightly under expectations of 1.3mm bbls; but this is commercial stocks. An additional pull on crude stocks from the US Strategic Petroleum reserve is overlooked in our view, and is on pace to normalize within weeks shifting any incremental draws back to commercial stocks. With inventories tightening, consolidation and removing capital from an industry pivoting to a business model prioritizing cash returns over growth,
energy in a post COVID demand recovery has all the hallmarks of a coiled spring.