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Beyond OPEC: Oil Markets Have Serious Demand Issues

The key theme driving oil prices through the beginning of this week was cooperation. On the OPEC+ front, we’ve had cooperation between MBS and Putin resulting in a 9-month production cut into March of 2020. On the trade front, we’ve had cooperation between Trump and Xi which prevented further tariffs from kicking in, saw both sides give key trade concessions and set the table for a return to real negotiations. Both events gave crude oil a positive push and moved Brent over $66 for the first time since May. Unfortunately, we think traders might be wise to apply some skepticism to both fronts. While geopolitical dealings may look rosy at the moment, cooperation within OPEC+ and between US/China is still climbing an uphill slope. The skepticism should be compounded by stark reminders mid-week that the global economy may be slowing and sent Brent back below $63.

On the OPEC+ side, markets had already priced in an extension of existing supply cuts into 2020. The tricky part in judging the Russia/Saudi relationship will be that diverging oil budgetary needs could undermine the ability of the two nations to cooperate over a long period. For the near term, this concern has been put to bed by this week’s OPEC+ deal which OPEC Secretary-General Mohammad Barkindo referred to as a marriage which would last into eternity. The signatories of the new deal even exchanged poems and gave each other pins to commemorate their accord. Russia/Saudi oil market cooperation…




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