Treasure Chest | Aug 01 2016
ANZ Bank analysts suspect concerns over the build up of US oil stocks are unwarranted.
By Eva Brocklehurst
Are investors overly bearish on oil? ANZ Bank analysts believe this may be the case, and that concerns over the build-up of US inventories are unwarranted.
The analysts acknowledge momentum in re-balancing the oil market has eased somewhat recently but consider this to be a temporary feature of the market. Oil prices have been under pressure in recent weeks and this has sparked fears US gasoline demand is weakening.
Despite this being the peak season for driving in the US, oil inventories have continued to rise. Yet the fall in gasoline prices recently has coincided with an improved US jobs report which suggests demand may pick up subsequently in July and August. The peak in US travel occurs in July.
The analysts do not believe this rise in inventories is unusual, while underlying data suggests demand for crude products is strong. Despite oil prices falling nearly 25% in July they believe the broad upward trend remains intact.
Concurrently, US shale oil production is declining, having fallen almost 400,000 barrels per day, year on year, in the June quarter, and weekly data signals the downturn continues. US rig activity may be moving higher but remains well below the level required to maintain current production levels, with the analysts suspecting increased activity is unlikely to be sustained at prices in the low US$40/bbl range. This should push total US output below 8.5m barrels per day in coming months, they maintain.
Meanwhile, disruptions among OPEC members remain high and are likely to continue. Hence, the analysts would look to an even tighter market in the December quarter if prices remain at current levels.
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