Market Overview

Credit Suisse Expects 'Fierce Cross-Winds' To Drive Oil Volatility

Credit Suisse Expects 'Fierce Cross-Winds' To Drive Oil Volatility

Crude Oil has rebounded with a vengeance from January's lows. The price for a barrel of NYMEX Light Sweet Crude has gained roughly 63 percent since February's low of $26.05 to close Thursday's session at 46.50. The turnaround in the Crude Complex sentiment has been spectacular and Credit Suisse expects fundamentals to support continuing strength in demand and prices, even if that reality is nothing more than wishful thinking.

In a Thursday note, the firm painted a fearful future for oil and derivative products accidentally. Although demand for gasoline on a global scale "appears healthy," Credit Suisse said Singapore's depressed refining margins are the Asian "demand canary that we continue to monitor closely" as they should, given VLCC rate contraction over the past months, enough oil inventories to drown the world, and a growing "premium spread" on gasoline.

Brent price spread on front month contracts and 6-month contracts continue to run in contango, for the second year:

It's no real surprise why given all the recent bullishness in prices originated with the early February 2016 rumor of a OPEC production freeze. That was dragged out for months, then turned into the main talking point for the Doha meeting before being completely nixed once prices rebounded enough to remove funding worries at Oil & Gas firms positioned up- and down-stream.

The U.S., along with the rest of the globe, is swimming in oil. Inventories levels remain materially higher than in the recent pass:

As for days to cover, well, we're sitting pretty with a month of supply sitting around:

All the excess supply we're seeing is still trumping the flow demand. Demand for U.S. finished gasoline remains strong relative to history but it won't be enough to offset:  

Expectations of a material exogenous event that would change the fundamental story for the global oil complex remains elusive, lest we forget the power of unsourced rumors akin to the one we saw from February through the end of April.


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