RBC has been largely right on oil this year.
Our View: While geopolitical risk has largely dominated client dialogue through most of the year, we have started to see more focus returning to the fundamental side of the energy conversation. That said, in tandem with rangebound prices, broader sentiment and investor targets have also trended in a tighter band. The lack of major, multi-quarter themes leads us to believe that rangebound volatility is likely here to stay. At the same time, there is no shortage of captivating subplots that can help give color to price gyrations in the near term.
A Soft Physical Market: While we’ve seen shoots of bullish sentiment emerging relative to the beginning of the year, the physical market is still very sloppy. The North Sea market is currently awash with light, sweet barrels, which has led the entire complex lower. With Brent
-Dubai already trading around parity, we see a potential path for the light grades to clean up by mid
-summer coming out of refinery turnarounds in Europe. Until then, we find it hard to get more constructive until we see evidence that cargoes are starting to clear.
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