Oil commentary - 31 August 2020

Morning all. Another weekend over, and another one full of silverware for Arsenal. Lovely. Brent is trading this morning up 0.47 at $46.27 and WTi is trading at $43.27 up 0.30. Ahhh, that usual Monday feeling for anyone in the oil market, where you're looking at your screen all confused in the same way a pigeon identifies a snack on the floor, with that sort of head poking, twisting from side to side movement. I know I'm usually negative about the price of oil, but I just cannot fathom how and why Brent continues to trade up. Let me just speak out loud for a moment as to some facts - The US oil rig count grew in August for the first time in 5 months. Oil bulls cut net length last week to the lowest level in four months. OPEC+ have started to taper production cuts. VLCC (very large crude carrier) freight, arguably a bellwether for demand, is at its lowest in five years at WS 29.50, this is owing to the fact that there are still so many cargoes of crude still waiting to discharge offshore China. This is the third time the route has fallen below WS30 in the last 15 years. And that last point is the important one. I have said this many times before that the first half of 2020 was all about production curtailment, put simply, if supply had stayed around the same levels that were being produced in say January then the market would have been staring in to the abyss, but OPEC+ stepped up and the market recovered. The second half however is all about ensuring those demand forecasts, so bravely hypothesised a few months ago, would actually ring true. And they just aren't. Japan's crude oil import for example in July were down 34pct. Expect demand data to come in over the next couple of weeks that will, more than likely, evidence similar grim facts. Yet crude oil futures are refusing to reflect fundamental realities. As I said a couple of weeks ago, Brent, and its American cousin, continue to ride on the back of continuing gains in the equity markets. How much longer this continues, is anyone's guess. Good day and week to all.