Oil: Tactically negative on US supply – Deutsche Bank

Analysts at Deutsche Bank note that oil has recovered strongly from its mid-year slump and they are now tactically negative on US supply.

Key Quotes

“We are tactically negative on a second emerging wave of supply-positive data emerging from the US:

− Rig counts responding to higher WTI price

− Rig productivity rising as frac capacity delivered

− Monthly and weekly production data now agree, removing a key uncertainty”

“Global supply-demand balance surplus of +500 kb/d in Q1-18 also likely to be a short-term negative”

“Slower inventory draws over the next 12 months suggest stable prices with risk of downside drift”

“Medium term we are constructive on the commodity; recent pre-FID project breakevens indicate USD 65/bbl is still relevant as a marginal cost of supply, and therefore an equilibrium price level”

“Likelihood of sizeable deficit emerges in 2020 (-750 kb/d) after US supply growth and OPEC spare capacity are both absorbed by steady demand growth”

“Possible overshoot of USD 65/bbl equilibrium in 2020”