Standard Chartered: Oil Rally Will Extend Well Beyond $90 Per Barrel

• Oil is off to a strong start of Q3 with Brent rallying past $86 per barrel.
• According to commodity analysts at Standard Chartered, the Brent rally is sustainable well past $90/bbl.
• Standard Chartered: global oil markets will record a deficit in Q3 that will spill over into Q4.

 

The energy sector finished the second quarter as the second worst performer among U.S. market sectors, posting a -4.5% return compared to a 4.6% gain by the  S& P 500  as oil demand fears dominated for most of the term. The energy sector has now slipped to 4th in year-to-date  sector rankings  with an 8.6% return compared to a 15.5% gain by the broad-market benchmark. Thankfully, the oil price rally is back on track with the September Brent contract climbing to 86.60/bbl on 1 July, the highest front-month settlement since 30 April and $10.24/bbl above the 3 June low.

And now Wall Street is growing increasingly confident that the rally has fresh legs to run longer. According to commodity analysts at Standard Chartered, the Brent rally is sustainable well past $90/bbl, largely based on fundamentals. StanChart has projected that global oil markets will record a deficit in Q3 that will spill over into Q4, putting further downward pressure on inventories. In the near-term, StanChart&rsquo s proprietary SCORPIO machine-learning model is predicting a w/w increase of $1.70/bbl to an 8 July settlement of $88.30/bbl, with the current narrow Brent-WTI and Brent-Dubai spreads as well as price technical indicators and oil price levels being the most significant bullish catalysts.

StanChart notes that oil market sentiment turned extremely bearish in April with speculative funds moving rapidly to the short side of the market. This negative sentiment shift was largely driven by weak U.S. transport fuel demand as per reports by the Energy Information Administration (EIA) weekly data. Media houses did not help with the narrative, with some talking about multi-decade demand-lows and predicting an imminent collapse of the U.S. economy. To wit, the  EIA estimated  that U.S. gasoline demand declined 4.4% Y/Y in April, triggering a rapid pivot by speculative funds towards the short side of the market. However, StanChart quickly pointed out that there appears to be a systemic downwards bias in estimates of U.S. fuel demand, with actual gasoline demand exceeding estimates in 22 of the past 24 months, while distillate demand (mainly diesel) has been revised higher in all of the past 24 months. StanChart predicted that EIA estimates for April gasoline demand were too low with actual demand likely to surprise to the upside.

https://oilprice.com/Energy/Oil-Prices/Standard-Chartered-Oil-Rally-Will-Extend-Well-Beyond-90-Per-Barrel.html