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Saturday’s release of the Saudi Arabia official selling price (OSP) for ArabLight to Asia confirms OPEC’s strategy u-turn in no uncertain terms. The drop in prices may well take a month or even several months but the direction is clear, in the opinion of analysts at Deutsche Bank. They expect crude oil prices to nosedive. 

Key quotes

“We think previous lows will be exceeded, with Brent USD 19/bbl as a near term target. The decline of 43% in Brent from USD 108 to 46/bbl took 6 months.”

“We expect Brent prices to drop below USD 40/bbl relatively soon and incoming months, risks have risen of surpassing the 2016 low of USD 27/bbl.”

“We prefer short oil long vol strategies with a six to 12 month horizon, bear futures calendar spreads, or short Jun 2022 futures contracts, which now benefit from a strongly positive roll yield (~5%).”

“A similar reduction in US oil output today would likely require WTI prices to fall below USD 30/bbl and could take more than a year.”