Commodity Update; Crude Oil – 12 April 2015

Q1 commercial crude inventories at highest for 80 years in the US, imports rise

Since our last update, crude oil prices have held up relatively well, with Brent crude remaining comfortably above $55 and WTI crude above $47.50.

This has been despite a 2.5% increase in commercial crude oil inventories during the last 10 days, which has brought the total number of commercial barrels in storage to the highest level in 80 years for the current time of year.

While this could be symbolic of the first quarter slowdown observed in the US economy, it may also be an attempt by commercial organisations to capitalise on what are relatively high prices when compared with those seen in January and the months before.

We suspect that there are elements of both scenarios at play but regardless of which investors prefer, price action dating back to the middle of January has made clear that it is going to take a lot to get brent crude sustainably over the $60 level and WTI above the $55 point.

It is with this in mind that we note, it is difficult to foresee a particular catalyst for a break higher in oil prices during the weeks ahead.

On the contrary, growth figures for Q1 are expected to highlight an economic slowdown in both the US and the UK later on this month, while recent data from China continues to allude to the possibility of a further slowdown in the world’s second largest economy.

While we still believe that the bottom has been found and a further collapse is unlikely when it comes to oil prices, for the above reasons we are also sceptical of the idea that there could yet be another upward leg to come in terms of the recovery.

As a result, we stand by our earlier call that prices will probably remain locked between $40 and $60 for some time to come.

Brent / WTI Crudes in Q1 2015



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