The Phil Flynn Energy Report
Too Hard To Ignore
Covid-19 resurgence fears are taking a backseat to continued signs of rapidly improving demand and a commitment by OPEC cheaters to make restitution for past overproduction sins. In the meantime the comeback in demand is a testament to the impact of global economic stimulus and its effectiveness in healing the global economy.
Saudi Arabia and Russia got their message through to the bad boys of the cartel. Crude oil was initially lower on fears, rebounded on news that they were getting it together. Reuters reported that Iraq and Kazakhstan, during a meeting of an OPEC+ panel on Thursday, pledged to comply better with oil cuts, sources said. This means the OPEC+ curbs could deepen in July. In fact, Iraq and Kazakhstan pledged to cut output by more than the required amount to make up for the past swindling. Now with OPEC slicing and dicing, output signs that the global oil product market is already tightening, is giving the bulls an edge. The signs of demand improvement are everywhere you look.
RBOB Gasoline futures moved into backwardation for the first time in 3 months on Thursday, a bullish signal indicating supplies are tightening as the summer driving season gets under way. Meanwhile, swaps in the North Sea market that prices much of the world’s crude jumped on Thursday as traders posted several bids for cargoes but only one willing seller emerged.
Reuters reported that, ”In a further sign of market recovery, Brent on Thursday moved into backwardation, where oil for immediate delivery costs more than supply in the future, for the first time since March.”
Bloomberg is reporting Europe’s biggest oil refiner Total SA, this month bought 12 out of 14 cargoes that help to set the global dated Brent benchmark published by S&P Global Platts. The purchases compare with zero in April and May in a market where the main buyers are typically large trading firms. While Total’s reasons remain unclear, the deals come at a time when fuel demand is showing clear signs of improvement
The oil market is also getting support from even more stimulus. Russia’s central bank cut its policy rate by 100 basis points to 4.5%. Oil also is influenced by moves in the stock market which today will be moved by triple witching.
So say goodbye to doom and gloom! The oil market is sending signals that yes indeed the economy is improving and better days are ahead.
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