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Oil Traders Remain Bearish… For Now

Crude oil moved lower to begin the week on three key trends. On the geopolitical stage there was a (tiny) thaw in US/Iran relations after Iran’s foreign minister mentioned an openness to talks with the US. On the macro stage Donald Trump mentioned he might add tariffs to Chinese goods and on the weather stage hurricane Barry didn’t do long term damage to US Gulf production. The result was Brent trading near $64/bbl which was comfortably in the middle of the $61-$66 range it’s occupied in the last month. Spread markets traded at strong premiums in the front of the curve but option markets still imply that traders are more concerned with downside protection than upside risk. Taking a wide-angle view, the market seems too well supplied to enjoy a sharp move higher (as evidenced by the IEA’s recent estimate the oil market was oversupplied by about 500k bpd in 2Q’19) while OPEC+’s cut discipline and geopolitical strife in Iran and Venezuela are doing a good job of managing downside risk. We’ll likely need major news on the US/China or US/Iran front to generate a large move in oil prices and until then we have little to focus on other than central bank moves and weekly economic and supply/demand data.

Meanwhile equity markets seemed to be telling a more interesting story with the US S&P 500 climbing to all time highs on a mix of last week’s dovish Fed signaling and a Goldilocks attitude from traders that the global economy…




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