Numerous OPEC+ ministers have closed ranks over the last week to bemoan oil price volatility. Accusations of misleading weakening demand figures and the disconnect between the physical and paper markets are really code for one thing, according to a Standard Chartered report: they want higher prices.
Libya’s oil minister Mohamed Oun, for example, has blamed what he calls “heightened volatility” on “misleading news and stories about global oil demand and supplies,” all of which “have sent wrong signals to all market participants.”
But as StanChart pointed out, when some OPEC+ ministers say “volatility”, what they really mean is “falling prices.”
The realized volatility for Brent of which Oun speaks is currently 44%–only 4ppt higher year over year, StanChart said.
As for the accusations that the market has been force-fed misleading demand figures, this is a more complex issue, but one that StanChart says still can be debunked, using U.S. gasoline demand as a piece of the puzzle. U.S. gasoline demand—which accounts for 9% of global oil demand—has weakened in Q2 and Q3, with five months in a row of year-over-year declines.
In support of OPEC+’s complaint that demand could be higher than what is being reported, August’s demand figures (-2.6% y/y) are better than July’s (-7% y/y).
Source: EIA, Standard Chartered
The argument could also be made here that the revised monthly demand data—which only runs through May–is significantly more accurate than the weekly figures, which are being used to suggest demand is slackening in June, July, and August.
Still, StanChart sees oil’s fundamentals as “far weaker in Q2 and Q3 than they were in Q1, and that, not fake news, has been the key driver of prices.”
OPEC+ has threatened to cut production to rectify the disconnect they see between the paper and physical markets and curb this “volatility.”
By Julianne Geiger for Oilprice.com
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