What it took was a deterioration in the overall risk appetite as seen through the correction in US (tech) stocks and the dollar being bought. In Brent crude oil, the break of the uptrend from June was the technical trigger which finally kicked of a move to bring price and fundamentals more in line.
We do not believe that we will see a new dramatic sell-off in crude oil but have to accept that the coronavirus and doubts about the timing of a vaccine may continue to delay until next year, the recovery back towards $50/b on Brent crude oil. The slow(ing) recovery in demand may challenge the unity of the OPEC+ group which in hindsight increased production before demand had recovered enough to absorb the additional barrels.
Brent has found support at its 100-day moving average at $39.50/b but with speculators only just having started to reduce bullish bets, the correction may take it down to towards $36.50/b before support can be established. The general level of risk appetite seen through stock market developments and the movement of the dollar will continue be key sources of inspiration for traders.
Fundamental oil market guidance will be provided by OPEC and the International Energy Agency when they publish their monthly oil market reports on September 14 and 15 respectively. The EIA released its Short Term Energy Outlook yesterday and while saying that US oil production will shrink by 860k b/d in 2020, they also highlighted the incredible difficulty in providing forward guidance given the continued uncertainty about the demand outlook.