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Oil: Fundamentals outweigh geopolitical tensions

01/28/2020 | 10:05am

Concerns rise on the oil markets, which are once again shaken by geopolitical fears.

After the sabotage in close proximity to Hormuz and the subsequent large-scale attack on the Saudi Aramco facilities, the raid on Quassem Soleimani and the Shiite High Grades temporarily caused a crisis on the oil markets. While pressure on the Iraqi front has been slow to abate, it is tending to increase on Libyan territory, split in two between the GNA (Government of National Unity) forces in the north-west of the country and those of Tidal Haftar, the strongman of eastern Libya. Operators will closely monitor developments in Libya, where the main countries involved in the conflict have signed an aggressive international agreement, with Berlin aiming for an agreement and a permanent cease-fire; From the fundamentals, OPEC+ member countries are working hard to stabilize the market by reducing their production. The cartel also sees an improvement in the economic situation in 2020 and has therefore aimed to increase its forecast of global demand by 100.98 mbpd. In this context, it must be noted that the improvement in the terms of the exchange rate between Washington and P&P, if it is effective, will make it possible to sustain demand for crude oil, which is a necessary condition for a lasting balance in the market. In the United States, the number of active oil rigs is trending steadily upwards according to Baker Hughes data and production remains strong, at a record 13 mbpd. In its latest report on the US energy outlook, EIA expects US production to reach 13.3 mbpd in 2020 and 13.7 mbpd in 2021. Graphically, in weekly data, the surge in crude oil prices was quickly erased. The Brent thus returns to the middle of its weekly range, which is limited to between USD 72 and 58. Neutrality is therefore the order of the day. Only a return under USD  64.4 will be able to be exploited to aim for the low limit.

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