MBCC Trading Highlights 25th August'22 - Will Oil break down here or rally back to highs? Will the Nasdaq make new highs? What are our proprietary cross asset models signalling for Q4?

1) Oil – demand is WEAK when it should be rising this time of year – why it can fall here!

There is a lot of focus on what is happening to Oil demand , the answer to that question will determine whether you are a Bull or a Bear here. We saw the DOE Oil inventory data report yesterday that showed a Crude draw of -3.282M with a small build of 0.426M in Gasoline. More importantly, as you see in the chart below, demand for Gasoline fell down to 8.4 mbpd from 9.3 mbpd – as you can see it has STILL NOT recovered back to 2019 or 2021 levels! The entire bullish case on Oil was predicated on ”demand recovery” which has not really materialised. It is easy to look at the supply side and extrapolate strong demand from 1H of this year, calling for deficit markets, but demand is the key variable factor that will dictate whether we end up in a surplus or deficit situation by the 2H of this year. It is not a constant. What is astonishing is that usually this time of year, we see demand at its highest, but this just shows you the extent of macro economic weakness that is seeing soft demand during the peak summer months. People are driving less, manufactures are demanding less distillate as slowdown takes hold.

Our models have been picking up on weak demand for months now, and those who quoted strong time spreads or falling inventories only see what is happening “now”, but not what will happen tomorrow.

Of course once the data reports this, it will be too late as prices will have already fallen leading to analysts downgrading their forecasts lower, as we have seen these past few weeks.