We see how oil in particular has been under a lot of pressure that financial
fear is bleeding into commodities. To what extent does it reflect
fundamentals? Yes.
I mean, as you say, I mean, over the last couple weeks we have seen a large
reduction in, I guess, from speculators for their appetite for oil.
And that's been largely driven by that on it's outside of the oil markets.
I would say if we look at the fundamentals clearly in the short term,
they're not foolish enough to to offset the broader market selloff.
But if we look at the fundamentals, if rally have not changed over the last two
weeks. Right.
So in the short term, the oil balance looks still fairly, quite comfortable.
And that's due to the Russian supply holding up better than expected.
And so in the short term, I guess prices are likely to remain more range bound
and probably more influenced by macro factors.
It's really when we go into the second half of 2023 where we see the oil market
tightening quite significantly. And that should push prices higher from
where we are at the moment. So for the second half of this year, we
see Brent averaging ninety seven dollars a barrel.
And again, what's really driving that tightness?
Well, first is the demand side. We see a strong demand recovery this
year, particularly from China. And then you see that sort of coupled
with some supply constraints. Right.
So if we look at not no effect supply, we're expecting fairly limited growth
there. And I know CAC plus obviously they've
got their supply cuts running through until until the end of this year.
Warren, you say fundamentals have not really changed, but if you listen to
Citi C O Jane Frazier, she says that the banking sector makes a recession more
likely now than before. So fundamentals perhaps have changed.
Well, we'll need to see how long this this this last, right.
When we see the dust, let the dust settle and see what the actual impact on
demand is. I think that what's important to
remember is for 2020 3, we're looking at demand growing by about 2 million
barrels a day, year on year. And the bulk of that's really going to
be driven by China and its reopening. Right.
If we look at sort of OPEC, these countries, so if you look at the
Americas, Europe demand growth, there is a lot more a lot more modest this year.
And actually still below Perrigo, but levels for a lot of those regions.
Why do you think that demand picture of China, this whole kind of reopening
story, hasn't quite supported oil prices up to this point?
Or is this recovery really still on track?
You think? Yeah, I think so.
It's been a slow start. Right.
I mean, we'll see hard Chinese New Year in January.
And we also have a wave of Covid infections.
So it's been a slow start to get that recovery going.
But if we look at oil import data for March, it's looking as though those
flows will be quite strong. It's also looking as though the tanker
market's quite a bit stronger with tankers being booked up.
And apparently that's been largely driven by a by my Chinese activity.
So, you know, for the year, we are expecting Chinese demand, as said, to
grow by about a million barrels a day. That's going to be heavily skewed
towards the second half of 2023. So, again, when you factor that strong
demand growth with constrained supply, it does suggest higher prices as we move
through the year. Is oil still the best way to play that
time reopening story? How are you viewing the rest of the
commodities complex? Yeah, I think part of the energy is the
way to go. As you say,
there does seem to be a little bit of a disconnect between where whales trading
on the reopening story for China. So, I mean, we clearly see quite a bit
of upside in oil prices as a result of that.
If we look at metals, for example, they really rallied on the back of the
reopening news. Right.
So I think when it comes to metals, we actually have to see fundamentals
catching up with expectations. If we were if we'd see prices sort of
maintaining these these lofty levels that we've been seeing in trade
portfolio for at least the early parts of this year.