Brent rose $1.11/bbl last week to average $71.61/bbl while WTI rose only $0.12/bbl to average $62.09/bbl. The disparity in the price changes show that concerns were broad-based and likely more geopolitical than fundamental. For the week ahead we expect Brent to be generally rangebound and average closer to $71/bbl on news out of OPEC, concerns about US crude builds, and ongoing trade tensions with China.
Reports from this weekend’s Joint Ministerial Monitoring Committee meeting have been mixed. Initial reports indicated that OPEC and its allies are considering raising production levels in the second-half of the year. While an official decision won’t be made until June, Russia has been quite vocal all year in its desire to raise production. At the same time, many members remain wary of a potential price drop if production is increased, similar to the one seen in mid-2018. And in the last 24 hours representatives for Saudi Arabia and the UAE have both come out as opposed to a production increase. Stratas Advisors currently expects OPEC production to gradually rise in the latter-half of the year as a result of lower compliance from deal signatories. Other options could include an official decision to raise production or an agreement to reduce over-compliance.
Margins globally are generally below their seasonal averages for this time of year. However, utilization is still high. In the US, utilization was 90.5% in the second week of May. Even with strong runs, utilization is below last year’s levels, leaving room to increase if price support appears. Bullish bets on Brent continue to fall at a much slower rate than those on WTI, as geopolitical concerns likely provide some support. Additionally, despite chatter around OPEC, oversupply concerns remain almost entirely focused on potential US production. Thus any signs of a US oversupply will be reacted to very quickly. The White House’s decision not to impose auto tariffs as well as the agreement on metals tariffs with Mexico and Canada has somewhat reassured investors about the state of the global economy but negotiations with China are ongoing.
Geopolitics Unrest - Neutral
Global Economy - Positive
Oil Supply – Neutral
Oil Demand – Neutral