Oil to slow down the reaction this year – Rabobank

The OPEC+ virtual technical meeting was held this week and resulted in a decision to move forward with the planned easing of the current supply cuts in August. Economists at Rabobank continue to view the current weakness in the refined product crack spreads as indicative of a fragile end-user fuel demand recovery. 

Key quotes

“The decision will add close to 2mb/d of crude to an industry already dealing with record oil stocks but there was little price reaction given the announcement came as no surprise to the market and was mostly in line with recent public guidance. Surprisingly though, the group of oil exporting nations concluded that adding supply to the market now would not hinder the recent price strength but it's hard to see how that extra supply coupled with a relatively fragile demand recovery is not negative for crude oil prices, at least on the margin.”

“We continue to view the current weakness in refining margins as indicative of less than stellar end-user fuel demand and with half of the summer driving season behind us in the Northern hemisphere, the near-term outlook does not offer much upside with respect to gasoline consumption.”

“We continue to see limited upside to both flat price and calendar spreads as a result of fundamental and quantitative market pressures. As such, it would not surprise us to see a washout of the out-sized speculative ‘longs’ that have built up in crude oil futures in recent months and specifically in WTI as retail investors continue to flee the space in droves.”

“On the flip side, we still expect any major dips in crude to be bought as oil still looks attractive on a relative basis to other asset classes and especially given the amount of stimulus flushing through financial markets, a dynamic we expect to remain in place for the foreseeable future. Given this view, we expect sideways to lower oil price action for the balance of this year.”