WTI crude was trading sub $70 per barrel on Monday, a move which solidifies its breakout from a recent $70-80 trading range.
The big question facing the market now is whether prices will continue to trend lower ahead of the holidays, or garner some support from financial inflows.
One thing is clear. The fundamental picture remains weak according to analysts at JBC Energy. As they summed up:
Some of the reasons behind the latest bearish wave are: the massive middle-distillate overhang, negative y-o-y demand figures for gas oil and gasoline, a widening crude contango, bearish economic headlines, renewed turbulence in financial markets and a strengthening dollar.
The demand issue is perhaps the most glaring right now, considering the year-on-year comparatives relate to what was already a substantial demand retraction last year.
On that note, here’s a chart presented by JBC Energy last week on the matter:
Gasoline and Gas oil deamnd demand growth - JBC Energy
The other bearish factor to keep in mind, according to Olivier Jakob at Petromatrix, is the inclination of financial investors to cut and run while they’re ahead. As he noted on Monday:
The correction in WTI is putting the returns on the S&P GSCI at threat of printing a flat return for the year. It is for now -5.93% on the month and +5.85% for the Year-To- Date and a return to 0.00% for the year should be reachable if the Dollar Index can continue on its recent advance.
Related links:
Goldman Sachs up 12-mth gold forecast to $1350/toz – FT Alphaville
The GOD (glut of distillate) delusion – FT Alphaville
Demand is in the toilet - FT Alphaville