Oil’s Brexit Crisis
Oil has failed to recover post-Brexit as most other major markets have. This demands close monitoring, as too-low prices almost caused a recession in the first quarter. But we think the present slump is not a post-Brexit demand-shock, but only a well-deserved correction after a near-double from the bottom in February. Indeed, from a position of near-perfect supply/demand balance at mid-year, crude is about to enter into deficit of 1.27 million barrels per day by year-end, which will call forth sharply higher prices. We see no merit in the dominant narrative that stocks aren’t being drawn down as rapidly as they should, as this ignores the sharp draw in OPEC stocks. We reiterate our forecast for oil at $65 by year-end.