- Oil demand recovering
- OPEC to review oil production levels
- Morgan Stanley says oil-gold ratio poor indicator for oil price
On Wednesday, oil prices rose following a drop in US crude stocks as the market waits for direction from the OPEC meeting regarding future oil production levels.
Oil demand recovers amid the second wave of COVID-19 cases in the US
There are signs of recovery in oil demand amid the resurgence of COVID-19 cases in the US as crude inventories dropped in the July 10 week by 8.3 million barrels. This beat analysts’ projections of a drop of 2.1 million. Key OPEC members and allies that include Russia are expected to review global production on whether to ease cuts to 7.7 million barrels per day or extend the production cuts of 9.7 million bpd.
In its monthly report, OPEC indicated that global demand could surge by around 7 million barrels per day in 2021. This upbeat sentiment is based on optimism of economic recovery from the pandemic, but the levels could still be below those seen in 2019.
Time : 15-07-2020
Pivot : $40.12
Technical View : Long above $40.32
Targets : $40.52 – $41.32 – $41.93 – $42.98
Comments : Weak Bullish
Last Price : $43.26
Technical View : Short below $39.92
Targets : $39.72 – $39.26 – $38.31 – $37.61
Morgan Stanley says oil-gold ratio not a good indicator for future oil prices
According to Morgan Stanley analysts Martijn Rat and Amy Sergeant, the oil-gold ratio is a poor oil price indicator. Currently, Brent crude futures have declined 35%, which is the worst in over five years. On the other hand, spot, gold futures are up 19% year to date and are on track to record their best year in a decade.
Despite recovering from the over 40-year dips in late April, the bank indicated that the oil-gold ratio was in its 99th percentile since the 80s. The analysts explained that when the current oil price is expressed in gold ounces, it is at par with the 1986 ratio and almost 20% cheaper relative to the 2016 low. Therefore if the ratio was to bounce back to its historic median, then oil prices have to rally about 160% assuming gold prices remain the same.