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The Next Major Catalyst For Oil

Last week we saw OPEC+ come to terms on a deal to extend their existing supply cut agreement into March of 2020. With that transaction in the rearview, we think oil markets will likely spend much of July being macro-obsessed with a high degree of interest in the US Fed’s next interest rate decision on July 31st with guidance coming from US Fed Chief Jerome Powell in public remarks today and Thursday. There will doubtless be attention paid to US/China trade relations, Iran’s recent uranium enrichment efforts and global crude fundamentals but the Fed’s next move could be of intense interest as global growth concerns likely reclaim center stage.

Major central bank moves are always of interest to risk assets but we think the current one is setting up to particularly impactful for two reasons. Firstly, there seems a slight disconnect to us on what markets are expecting for Fed actions versus the messaging we’re getting from the central bank’s leadership. Second, OPEC+ is unlikely to make headlines anytime in July, clearing a path for focus on the state of the global economy to retake traders’ focus. US refiner demand is currently lower y/y by about 300k bpd despite solid GDP growth and we are increasingly concerned about the ability of this market to generate demand growth in the second half of the year.

On the first point, recent volatility in short term Treasuries suggests traders have a diverse set of views on what the Fed might…




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