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It’s been sideways price action in oil markets for months now as a weak fundamental backdrop has kept prices from running too far to the upside while the downside has been limited by a number of outside influences and macro developments. All in all, key macro markets such as global equities, currencies and gold are likely to have an outsized impact on oil prices for the foreseeable future relative to oil fundamentals, per Rabobank.

Key quotes

“The fundamental story is rather dull at the moment and it’s really these non-fundamental and more macro related market drivers that are likely to have an out-sized impact on oil prices for the foreseeable future. As such, the US dollar is certainly a key market to watch. On top of the dollar, global equity markets and even gold are likely to have a major influence on oil prices as was on full display earlier this week as gold and the precious metals fell sharply while the oil complex rallied, which to our minds, appeared interconnected and possibly related to a cross-commodity sector momentum unwind.”

“Fundamentally speaking, the oil demand recovery is quite fragile as we see it and the risk of a second wave of virus-inspired lockdowns is high as we head into the fall in the Northern hemisphere. On top of the oil demand concerns, upside supply risk from the US is possible and even Libya and Venezuela can only go higher from current output levels.”

“As for market flows, we continue to keep a close eye on the macro backdrop and the desire for investors to own real assets given inflation fears. As of right now, commodities look cheap on both a historical perspective and a relative one so wide-scale buying of commodity futures such as we saw in the mid-2000s cannot be ruled out.”