Headwinds continue to smash the oil markets in short term ranging from the heightened levels of inventory, market positioning and worries that the consequences from the Brexit vote might lead to rise in uncertainty in financial markets, noted JP Morgan. A significant rise in risk aversion is hardly ever positive for the oil price.
This, along with the renewed uptick in the JP Morgan Economic Research assessment for recession risk, shows that short-term dynamics are expected to be volatile as was seen in the mid-week price action, when oil prices rivalled their post-Brexit decline of around 7 percent, after the release of US weekly data, added JP Morgan.
Therefore, the oil market continues to be slightly short of being called tight. Levels of inventory continue to be at a higher level. Moreover, the total US commercial inventories rise to a new record. Diesel inventories continue to be more than the five-year range. But, even if gasoline inventories are widely flat week on week, builds continue apace in the other oil categories, added JP Morgan.
“Indeed our end-2Q’16 price forecast since mid-May has been for Brent to reach $46/bbl. Furthermore, we retain the $52/bbl December call with a $42/bbl knock-in”, said JP Morgan.
This view suggests that prices will continue to be volatile in the range of USD 40 to 60 per barrel. However, as uncertainties and financial risks ebb away, fundamentals will reassert dominance, stated JP Morgan. Hence, it won’t be surprising if the oil price declines in the short run if economic news flow declines from here.
