Friday, September 6, 2019
1. Oil surplus not going away
- The oil market could see a supply surplus and inventory builds for the next five quarters, according to Morgan Stanley.
- Morgan Stanley says that the Brent futures curve is currently in a state of backwardation, but that will likely flatten out in the coming months as the glut worsens.
- Backwardation – when near-term futures trade at a premium to longer-dated contracts – is usually a sign of tightness. Contango – when near-term futures trade at a discount – tend to signal looser conditions.
- Currently, the backwardation has held up even as oil prices have been flat.
- “Our inventory days-of-demand cover model suggests timespreads are already elevated versus current inventories, with further builds expected,” the investment bank wrote. The bank predicts the spreads will narrow and flatten by the end of the year.
2. Commodities volatile on trade war
- The amped up rhetoric around the U.S.-China trade war has significantly affected investment flows. As Standard Chartered notes, President trump tweeted about China three times in March, twice in April, but then 58 times in May.
- “The surge in China-related comments in the first half of May represented a significant escalation of trade tensions and was associated with sharp price falls across trade-sensitive commodities,” Standard Chartered said in a note.…