November 26, 2019

November Crude Oil Price Update

Crude oil prices surged in November on optimism around a trade deal and rumors from OPEC that the current supply agreement would be extended at the Dec 5 meeting. Physical fundamentals are stable but spots of softness remain, especially when considering refined products. Visible crude oil stocks in the OECD are above 2018 levels, despite higher year-on-year refinery intake. Refining runs will remain strong through the end of the year on both new facility start-ups and product stock building in advance of IMO 2020. Technical indicators, especially those tracking momentum, don’t appear to be signaling a shift in direction, indicating that range bound activity could continue, just at a higher starting point.

Due to the sentiment driven increase in prices, we believe that chances of a correction are greater than chances of a continued price rise. Negative headlines about US-China trade negotiations could see crude oil prices swiftly reverse, even with an OPEC+ extension in place.

Current Price Outlook versus Actual

November current crude oil prices versus actuals

Prices trended fairly close to our forecast in October, but November saw them veer sharply higher on hopes that a US-China trade deal would be announced. Although negotiations are proceeding, we have trouble envisioning a timeline that sees a Phase One trade deal signed before the end of the year. Additionally, with no fundamental change in physical markets, and a trade agreement still in the “negotiation” phase, we think the chances of a correction are substantial. One bad headline could see prices fall back before the end of the year. The average price of Brent so far this month (Nov 1 – Nov 26) was $62.59/bbl, a substantial $3.42/bbl above our November forecast. Brent crude oil has risen $2.57/bbl since the start of the month.

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