Flash - Oil Price Decline Accelerates with Macroeconomic Demand Fear

Longer-term implied volatility is still interesting as an investment, short-term flat-price (i.e. very near term) directionality is only for those who don’t know any better.
— @OilArb - Matt Epstein of Aremet Energy Consulting
Source: CME.com and TradingView.com

Source: CME.com and TradingView.com

The more oil prices fall, the greater the chance of an OPEC-led production cut extension. Thus, today's price declines may ultimately underpin a bullish price outlook tomorrow. But that is by no means a justification for buying oil today.

Unfortunately, the endless debates on supply elasticity (shale production and productivity vs OPEC compliance) will now take a back seat to demand-side concerns. Despite the unreliability of basic supply-demand statistics, it's hard to reconcile record refining activity in North America with persistently high storage inventories of both crude and refined products. International shipping & inventory observations don't paint a dramatically different picture either, obfuscating clarity on a global level. Rates of change are insufficient to confidently identify, separate, and attribute changes caused by normal seasonality from changes of a structural nature, leaving fundamental analysts with weak arguments to navigate the tides of sentiment and momentum.

With a sudden renewed macroeconomic awareness of signals of dual economic deceleration coming from both the US and China, micro-fundamental data points are rendered secondary as massive flows of capital will dictate the immediate price trajectory. For now, that trajectory is DOWN.

For a full review of our outlook, see Oil Prices - Pain Before Pleasure


Aremet Energy Consulting - Unconventional Insights

We have over 20 year's experience navigating oil and gas prices as well as public and private investment opportunities across the petroleum-based energy sector (Upstream, Midstream, Downstream and Marketing).

Our most unconventional insights include:

 "Immediate, independently-measured data on crude oil inventories and commodity flows will replace biased-survey-based data and revolutionize the upstream trading and capital investment cycle."
 "Oil companies have been mislead into pursuing ineffective and overpriced hedging strategies."
 "Oil markets do not trend toward equilibrium. Balanced markets only happen by accident, and disequilibrium is the norm."
"The real cost of debt (including bankruptcy risk) for companies exposed to commodity prices is far higher than advertised, leading to poor capital allocation decisions and sub-optimal strategy execution."

About the author

Matt Epstein leads Aremet Energy Consulting, an independent advisory boutique based in Greenwich, Connecticut. With over 20 years experience as an energy specialist, Mr. Epstein is regularly engaged by oil companies, investment managers, and commodity traders for assistance managing commodity price volatility, and for innovative financial structuring solutions. 

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