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What Is Keeping Oil From Entering A Bear Market?

Rig

October has been a tough month for crude oil. WTI has dropped from $76 to $66 while Brent fell from $86 to $76. We started the month thinking that prices would exist in a tug of war between bullish supply/demand fundamentals and a bearish economic background and instead the market’s been served a relentless flow of bearish news for three straight weeks.

For supply/demand balances, the news flow has been focused on downgrades to 2019 demand forecasts and higher than expected supply gains in the United States. OPEC, the EIA and IEA all downgraded their expected refiner consumption for 2019 and China/U.S. trade disputes have added to concerns from analysts that the economic picture isn’t pretty. In the U.S., crude oil stocks have jumped by an incredible 29m bbls over the past five weeks. To put that in a seasonal context, inventories decreased by 6m bbls during the same period in 2016 and fell by 15m bbls during the same period in 2017. Much of the recent builds have been due to seasonal refiner maintenance but the more powerful force in the market for now seems to be that every key producer globally – with the exception of Iran and Venezuela – is pumping at record levels.

On the macro side we’ve been arguing for several months that a dimming growth outlook for 2019 would help keep a lid on prices. These concerns have been highlighted in October by falling global equity markets from Shanghai to New York which have been a primary driver…




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