Brent Crude Oil correction to find support at $35 – OCBC

Howie Lee, an economist at OCBC Bank, thinks the market may be experiencing a correction in the Brent Crude Oil price toward the $35 support as the inventories recorded a high the last week. 

Key quotes

“The rise in US crude oil inventories to a record high last week to 538.07 billion barrels – increasing 5.7 billion barrels again an expected 1.0 billion drop – underscored the task ahead for oil markets in absorbing the excess stockpile surplus. Even if the market is headed for a global supply deficit by Q4, the brimming stockpiles provide a sizeable challenge for any sustained price rally.” 

“Although OPEC+ extends its current supply cuts by a month, Saudi Arabia and its Gulf allies have chosen not to extend its voluntary cuts from June into July, in essence rendering the extension less effective than it should be. Adding to the bearishness is global markets believing that a second wave of contagion has begun in the US and possibly China.”

“We think Brent may correct 20% from its peak of $42.30/bbl, finding a short-term bottom at $35/bbl. It sounds like a deep correction, but when one remembers Brent (for August delivery) has risen 68% from trough to peak in 5 weeks, a 20% correction looks within reason.”