Morgan Stanley's take on the Oil Market - July 12
Posted: Fri Jul 12, 2019 11:17 am
Martijn Rats, CFA – Morgan Stanley (Martijn is MS's top energy sector analyst. He is based in London.)
July 12, 2019 3:58 PM GMT
A wrap-up of what's driven oil markets this week
The stars aligned for an oil price rally this week... At the time of writing, Brent prices are on track to end the week up 4% and on Wednesday closed above $67/bbl for the first time since late May. A confluence of macro, fundamental and geopolitical factors drove the price action.
1) Macro: The S&P 500 hit a record high, touching 3000 for the first time on Wednesday as Fed Chairman Powell signalled that interest rates could soon be cut in his testimony. Our strategists are calling for an above-consensus 50bp rate cut at the next meeting.
2) Fundamentals: US producers have shut about 1 mb/d of Gulf of Mexico production in preparation for Tropical Storm Barry, according to Platts. The National Hurricane Centre is forecasting Barry to strengthen into a hurricane late Friday or early Saturday. A number of refiners are also making preparations, but the impact is largely on the crude output side so far. On top, the EIA reported a 9.5 mb/d draw in US crude inventories last week as refinery throughput reached the highest level since the start of the year.
3) Geopolitical: Following headlines last week that British Royal Marines had detained an Iranian super tanker in Gibraltar, Iranian boats reportedly tried to seize a British oil tanker in the Persian Gulf as it approached the Strait of Hormuz on Wednesday. The UK is planning to send a second warship to the Gulf while the US has proposed a military coalition in the region. ...but little improvement in the broader macro backdrop.
India posted another weak demand number, falling by 1.7% YoY in June led by kerosene, LPG and fuel oil. Since the start of the year, the IEA, OPEC and the EIA have reduced their 2019 global oil demand growth forecasts by an average of 300 kb/d as 1H data has come in weaker. On top, the three agencies forecast non-OPEC supply growth of >2.1 mb in 2020, with an average call on OPEC of just 29.3 mb/d, versus June output of 30 mb/d.
July 12, 2019 3:58 PM GMT
A wrap-up of what's driven oil markets this week
The stars aligned for an oil price rally this week... At the time of writing, Brent prices are on track to end the week up 4% and on Wednesday closed above $67/bbl for the first time since late May. A confluence of macro, fundamental and geopolitical factors drove the price action.
1) Macro: The S&P 500 hit a record high, touching 3000 for the first time on Wednesday as Fed Chairman Powell signalled that interest rates could soon be cut in his testimony. Our strategists are calling for an above-consensus 50bp rate cut at the next meeting.
2) Fundamentals: US producers have shut about 1 mb/d of Gulf of Mexico production in preparation for Tropical Storm Barry, according to Platts. The National Hurricane Centre is forecasting Barry to strengthen into a hurricane late Friday or early Saturday. A number of refiners are also making preparations, but the impact is largely on the crude output side so far. On top, the EIA reported a 9.5 mb/d draw in US crude inventories last week as refinery throughput reached the highest level since the start of the year.
3) Geopolitical: Following headlines last week that British Royal Marines had detained an Iranian super tanker in Gibraltar, Iranian boats reportedly tried to seize a British oil tanker in the Persian Gulf as it approached the Strait of Hormuz on Wednesday. The UK is planning to send a second warship to the Gulf while the US has proposed a military coalition in the region. ...but little improvement in the broader macro backdrop.
India posted another weak demand number, falling by 1.7% YoY in June led by kerosene, LPG and fuel oil. Since the start of the year, the IEA, OPEC and the EIA have reduced their 2019 global oil demand growth forecasts by an average of 300 kb/d as 1H data has come in weaker. On top, the three agencies forecast non-OPEC supply growth of >2.1 mb in 2020, with an average call on OPEC of just 29.3 mb/d, versus June output of 30 mb/d.