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Two oil myths - USA supply and Russia committment to OPEC

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In terms of the near-term Black Gold trends, there is no change to our expectation of benchmark WTI crude oil prices remaining within broad range of US$50-65. The good news is after a soft 1H, demand growth has picked up in 3Q, and 4Q has a favorable base. Supply growth remains moderate and 3Q would be the first quarter in some time when demand will outstrip supply (inventory will reduce). However 2H19 alone will not clear the inventory overhang build during 2018-1H19 – so there is nothing strongly actionable in the near term, unless the range is breached. But there are interesting long-term supply-side trends we are watching, which break a few myths, and could make 2020 interesting again for Black Gold. (1) USA has been at forefront of oil supply last 5 years (5.2mbd/6.8mbd global supply growth) – the expectation for 2020 is not very different (1.2mbd/2.2mbd total). Except everyone seems to be ignoring the sharp declining in oil well drilling activity recently – so unless oil is starting to grow on trees… (2) Russia is the key OPEC leader but its loyalties (price support, or market share) have always been questioned. We look at some historical data to make up our mind…

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