1. Commodities

There is a calm mood in the markets, which certainly best illustrate the uncertainty of the operators, torn between the hopes of an economic recovery and the fears of a second wave of Covid-19s here and abroad. In other words, oil prices rise when macroeconomic conditions improve and then fall when advanced indicators of crude oil demand deteriorate. Therefore, while prices have been moving favourably since the beginning of May, the volatility is clearly reduced, and is severe, reflecting the low amplitude of the last weekly candlesticks. The weekly performances are practically null, one summer is boring and annoying; the image of the last OPEC+ meeting. The meeting was conducted via video conference and discussions focused on compliance rates of the members of the organization. As such, while fundamentals have improved in recent months with a reduction in the gap between global supply and demand, the cartel insists on the fragility of demand, without announcing new measures to restrict supply. It is therefore appropriate to take a more measured and consistent view of consumption and production expectations for the coming months. After having been particularly optimistic in recent months, the International Energy Agency (IEA) has revised its forecasts for demand, which are expected to fall by 8.1 million barrels per day (mbpd) this year and then rise by 5.2 mbpd in 2021. A forecast which remains at least more favourable than that of OPEC, which expects a similarly severe destruction of demand; 9.1 mbd in 2020. Graphically, in weekly data, Brent prices are progressing slowly but surely, making it possible to fill the gap opened on March 9. If the price of Brent crude oil falls below this level, which is roughly USD 46, it could reach the next major levels of USD 49 (moving average; 50 weeks) and then the psychological threshold of USD 50 per barrel. On the other hand, as long as the prices remain tied, we will favour the consolidation scenario, which is technically and fundamentally legitimate, through this technical zone.

What a twist. Two months after crossing the absolute zero line, US crude oil is trading at $41, up more than 90% since May 1st. The trajectory is similar for the European benchmark, which is trading above USD 43 per barrel. Several factors are contributing to this spectacular rebound in oil prices. In addition to the efforts made by OPEC+ to improve the global supply situation (the reduction agreement having been extended for one month), the market consensus, initially very pessimistic on the state of demand, has gradually recovered. The International Energy Agency (IEA) is now expecting a record increase in demand next year, which will help to rebalance the market. In a similar vein, the Energy Information Agency (EIA) has raised its price expectations for crude oil prices this year. This is a result of the decline in US production, which is expected to reach around 11.56 million barrels per day (mbd) in 2020, compared to a rate of 13 mbd at the start of the year.  Source: EIA Global supply/demand balance according to the IEA, which sees the market balanced from Q3 onwards Nevertheless, it will be necessary to be particularly attentive to the evolution of these bull markets, especially the trend of the supply side. The expanded cartel is expected to lift its quota policy, while US players could quickly bring back into service several wells that have been drilled but not fractured. Higher prices make many sites profitable, complicating OPEC's efforts to regulate supply. Rising truck prices are effectively a break-even point. This is all the more true for shale oil companies since they remain the most flexible players in adjusting their production.  US production could thus recover by 500,000 barrels per day in the coming weeks. In terms of order of magnitude, the U.S. supply balance has contracted significantly since the beginning of the year, from 12.9 million barrels per day (mbpd) to 10.5 mbpd. Wells drilled but not fractured are expected to boost U.S. production, but this could be unsustainable if investment spending does not recover. On a weekly basis, Brent crude oil prices rebounded significantly, virtually closing the gap that opened on March 9. The trend is sharp; normalization with a return of prices to their moving averages. In the shorter term, prices have remained in the range of USD 38 to 44 for the past three weeks. We will thus be able to act in the same way as in the other direction; the exit from this congestion zone.