Analysts at Nordea Markets explain that oil prices have plunged 20% from the highs in early October, and while some has hoped the plunge was temporary owing to the upcoming US midterms (as eg the POTUS had tweeted about oil prices being too high), oil prices have weakened furthermore after the election.
Key Quotes
“When we decompose the drivers of oil into a demand component and a supply component using an econometric approach, we find that oil demand has weakened somewhat since this summer. The lion’s share of the recent downdraft must thus be attributed to supply.”
“Moreover, the backwardation which was present only a month ago has disappeared and been replaced with contango (suggesting an inventory overhand and/or surprising demand weakness).”
“We’ve been arguing for some time that that the US yield curve, the money market curve (ED$), as well as recent underperformance of cyclical equities and of small caps have been consistent with a late-cyclical outlook and weaker global growth.”
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