FxWirePro: Quick Glance At Crude Oil Intricacies

Today, the global crude prices have risen a bit, with WTI surged above $23 levels or 0.38% and Brent rose to $31.64 or 0.14% at press time. But technically, the consolidation looks vulnerable as we foresee no traces of recovery after stern bearish candles. Although there are mild rallies, the current price is well below 7 & 21-DMAs as both leading oscillators (RSI & stochastic curves) substantiate selling momentum, while the trend indicators substantiate downtrend continuation.

Supply shut-ins are picking up pace. We track over 1 mbd of outages in April owing to pandemic Covid-19, storage constraints and low oil prices. Canadian oil sands producers were the first to react, given high operating costs and low oil prices for Canadian crude. 

It is estimated that 325 kbd of Canadian production will be shuttered in April. Iraq will likely shutter 300 kbd on a combination of Covid- 19 containment measures, disruptions in the supply chain and storage constraints. In Venezuela, about 235 kbd will likely be taken offline in April given export restrictions and limited storage. Brazil’s Petrobras has also announced a 200 kbd reduction from 2020 production forecasts. It is tracked that some small-scale shut-ins among small US producers, but total volume is negligible.

We refer to JP Morgan’s high-frequency demand model. This week, Mexico and Russia have been added to the list of countries under lockdown conditions. While Italy's quarantine period has been extended for two more weeks until April 18 and make adjustments to the US model, where social distancing efforts have been encouraged by the federal government to continue through the end of April. 

Global air traffic this week is tracking 72% below last year levels vs. our previous expectation of 60%. There are no signs of recovery in China’s air traffic yet. We peg the loss to global jet fuel demand at 1.7 mbd in March, followed by 4.2 mbd in April. 

We have made further negative adjustments to our US gasoline demand. DOE reports that implied US domestic gasoline demand dropped 25% w/w last week to 6.6 mbd, the lowest since January 1994. It is expected to declines of more than 50% y/y in the coming weeks. 

It is estimated that a hit to global industrial demand of 311 kbd in March and 1.8 mbd in April. Closing the week, our model is tracking an almost 7 mbd contraction in global oil demand in March and an 18.1 mbd hit in April. Courtesy: JPM