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By Michael Poulson, A/S Global Risk Management

Currently the Brent crude market is experiencing backwardation in OCT to DEC contracts - meaning that the spot oil price is higher than the futures contracts. This is an indication of markets expecting that demand is likely to exceed supply longer term.

Additionally, Reuters reported that net long positions are outweighing the shorts by 5.19:1, indicating that the market bets on increasing prices. These are two indicators of a bullish market sentiment; however, Brent oil price has dropped to below 51$ at time of writing. In Nigeria, the second country exempt from the current OPEC/non-OPEC oil production cut deal, Shell declared force majeure on a crude oil facility after unrest in the area.

A slight fundamental change has occurred, as latest Chinese crude oil demand figures came out weaker showing that their refineries processed 500 kbpd less through July, which is nearly the lowest refinery activity in 12 months. Furthermore, we have seen a remarkable draw in US crude inventories through the last four weeks. Tonight, the weekly oil stocks data from the American Petroleum Institute is released, one day ahead of the official EIA oil inventory report. Consensus is a draw in crude oil stocks of around 3.2M barrels (last week's data showed a 6.4M barrel-dr aw). Expect some volatility around the publishing.

In addition to last week's EIA report, showing an increased US average crude production forecast for 2018, the EIA just released a production forecast for September predicting increased production.

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A/S Global Risk Management is a provider of customised hedging solutions for the management of price risk on fuel expenses. The company has offices in Denmark and Singapore. For further details about its risk management products and services, please call +45 88 38 00 00 or email hedging@global-riskmanagement.com.