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The oil price – up, down or ‘range-bound’?

In recent weeks, US crude inventories have been building up, which is arguably a major reason behind the latest oil price drop. However, Laing argued, citing a recent Morgan Stanley note: “Less visible inventories have been drawing… And altogether, this makes for a total draw of 72 million barrels a day in the last two months.”

Moreover, “International Energy Agency (IEA) global oil inventories look far better,” said Laing. However, that looks like a slight exaggeration. Though inventories have indeed come down in 2016, they are still higher than they have been at almost any point over the past 20 years.

Laing also claims oil demand will prove more robust than the market expects because US consumers are not really making the switch to electric and more fuel-efficient vehicles. In other parts of the world, however, that’s a different story as governments will have to become serious about implementing the Paris climate agreements.

Add to this the policies favoured by the Trump administration that should push costs of oil producers down, and it looks probable that downward pressure on the oil price will also remain. A sustained price recovery therefore remains anything but certain.

Part of the Mark Allen Group.