Oil: We remain biased to the upside - Rabobank

Oil markets have recovered sharply in recent weeks from the macro inspired weakness witnessed back in May and early June, point out analysts at Rabobank. They remain biased to the upside for oil prices.

Key Quotes: 

“Recent inventory draws out of the US have strengthened our conviction in that call and the market has responded in kind. In fact, this week’s US Department of Energy report provided further strong evidence that demand remains robust which has helped quell the recent trade related fears. The report showed a sizable drop to US crude stocks of -9.5mb and a reduction in gasoline stocks of -1.455mb while distillate stocks built +3.729mb. The net result was a -7.226mb reduction to the major product categories which helped spur a more than 4% rally on Wednesday, the day the report was released.”

“On top of the bullish inventory data – a tropical storm in the Gulf of Mexico is shutting in crude production this week and more importantly threatening refinery operations along the all-important gulf-coast energy corridor which is keeping the market on edge.”

“Looking forward we remain biased to the upside for oil prices. Our base case forecast is for ICE Brent to stabilize around $75/bbl in 3Q19 and for NYMEX WTI to stabilize in the $70/bbl area. This implies a narrowing of the WTI-Brent arb which we expect to occur on the back of a tightening US crude balance sheet. We expect RBOB gasoline to continue leading the complex higher through the balance of the summer given the strong fundamentals and impressive rollyield implied by the forward curve.”