Head of Commodity Strategy
UPDATE: Crude oil and products continue lower following a bearish EIA report. Crude oil stocks jumped by 6.8m barrels due to a 1.3m b/d pick up in net imports.
Support came from continued strong refinery demand which reached a record 18m b/d. Stocks at Cushing rose by 1.6m barrels, the first rise in 13 weeks while production was adjusted higher by 100,000 (rounding) to 10.9m b/d.
In order to understand why crude oil has been left more exposed to an EM slowdown than before, we need to look at demand growth. According to the IEA via Bloomberg, some 50% of global demand growth in 1999 was driven by non-OECD countries. Today this percentage has risen to 87% and it highlights the current risk to demand from key consumers as their currencies continue to weaken against the dollar.
Brent crude is once again testing what looks like key support at $71/barrel.
The combined gross-short in Brent and WTI at 71,000 lots is close to the lowest seen during the past five years. This as the fear of supply disruption up until now have weighed harder than the risk to demand from trade wars and the recent increase in supply.