Managed money and speculative futures have been significant drivers. They got way too long near the high this year, of around $92 Brent, and sold out massively down to the low around $78. The transition is towards lower prices. This is evident in natural gas, where managed money net positions in the US and Europe are the longest in two years. It’s a matter of time before crude oil reverts to its cost of production, which in the US, is around $55. When it drops below that, it alleviates the excessive supply and demand in the US and Canada. Those two countries have an excess supply of around 6 million barrels of liquid fuels per day. In 2008, it was a deficit of about 10 million b/d.
US economy outlook for H2 and impact on oil demand?
US gasoline demand is declining. Diesel demand has dropped 7% from its peak in 2022, following the same trajectory as in 2009, and containerboard demand is declining. The Fed funds rate is about 300 basis points above PPI, whereas the average for the last 20 years is 150 basis points below PPI. So, it’s just a matter of time before crude oil and most commodities go lower, while gold continues to move higher. If you ignore the stock market, the US economic situation is quite poor. Retail sales minus CPI are negative. The crack will come when the stock market drops; that is being held up by the 6% fiscal deficit, which is unheard of outside a war or recession. The unemployment rate in the US is 4%. Last year, it bottomed out at 3.4%. It’s never bottomed from that low without trending towards 6%. That’s the current trajectory – t’s just a matter of time.