WTI crude oil (OIL.WTI) settled below $70 per barrel on Monday, with an assessment of Hurricane Rafael, which caused only about 27% of Gulf of Mexico production capacity, downgraded by the NHC to a tropical storm unlikely to cause significant damage to oil production.
- Adding further pressure on oil is the increasingly widespread return of pessimistic sentiment around China's economy, where CPI inflation growth disappointed, signaling a lingering risk of deflation; producer prices (PPI) in October fell 2.9% y/y versus -2.5% forecasts.
- The likely stimulus, valued at around $1.4 trillion, is unlikely to result in a radical change in oil demand, with crude imports remaining low. ANZ Research analysts believe that the market will now focus on the December meeting of the Politburo and Central Economic Conference. If the condition of the economy does not see significant improvement by then, perhaps more direct stimulus measures will be implemented, improving consumption
- Pepperstone Group believes that the 'equilibrium' of the market is currently the level of $70 per barrel of WTI, and at these levels oil 'feels comfortable'. On the other hand, while macro data from China is not encouraging, Vitol pointed out that China continues to drive global oil demand growth thanks to the petrochemical industry, which is expected to 'replace' transportation as the main source of growth in the coming years.
- Standard Chartered expects that US oil production will not accelerate under Trump and is expected to be moderate. Possible tariffs on steel market (a major component in drilling infrastructure) and the timeframe for federal land development, are expected to limit any significant US production surge.
All of these, however, are more medium-term factors that the oil market does not necessarily value today. Currently, the momentum for oil seems less optimistic; the market seems to be partially 'pricing' the scenario of a halt in fighting in Ukraine and at least a short-term gradual de-escalation of conflicts in the Middle East.
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Source: xStation5
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