Esperio: Markets Are Depressed, Lacking Therapy to Improve Their Self-Esteem

Oil prices survived above $118.5 per barrel of the North Sea Brent benchmark amid rising demand for crude.

Large institutional funds are generally sceptical about possible effects of the additional production quotes by the Organisation of the Petroleum Exporting Countries and its allies (the so-called OPEC+). Analysts at JP Morgan said in a clients’ note that "only a handful" of OPEC+ participants may have spare capacity, so that the real increase in their output is expected to count nearly 160,000 bpd (barrels per day) in July plus 170,000 bpd in August.

If so, then these are insignificant volumes compared to 648,000 bpd each month recently declared by OPEC+, which were also insufficient to meet the need for fuel, combined with a turbulent situation due to the need to redistribute fuel transportation routings after the EU’s decision to put its step-by-step ban on Russian oil supplies. Reuters cited its sources "familiar with the matter" that the Italian Eni and the Spanish Repsol will begin shipping some Venezuelan oil to Europe next month, but the article admitted that only "small" quantities were discussed.

Citibank sees a sanction relief for Iran in the first quarter of 2023, which would add about 0.5 million bpd in the first half of the next year, and maybe nearly 1.3 million bpd over the second half of 2023. Yet, the talks have stalled, so Citi’s previous Citi's scenario, which assumed a high probability of anti-Iranian sanctions relief before mid-2022, clearly did not work out. Its average price forecast for the second quarter of 2022 is now saying about $113 per barrel, which is already $14 higher than its previous forecast of $99 per barrel. However, even such a more than conservative revision of Citigroup forecasts, if compared to recent statements about a prospect of $150 or even $175 per barrel made by Jamie Dimon, Chief Executive Officer at JPMorgan Chase, says a lot about the prevailing global trend.

All this cannot but have a negative impact on stock markets on both sides of the Atlantic. Fearing new signs of inflationary pressure, which may be revealed from the consumer price index (CPI) in the United States, as well as plans of the European Central Bank following its meeting on June 9, major continental indices edged lower again.

Negative sentiment has become even more drastic after Germany's factory orders release pointed to contraction. Unfortunately, the incoming orders to the industrial enterprises of Europe's economic engine dropped for a third month in a row, and that was according to the data slice including April, May has not yet been included, when the price pressure was even worse. The indications fell by 2.7%, following on from previous declines of 4.2% and 0.8% for February and March.

The stock indexes in continental Europe are struggling. Meanwhile, the U.K.’s FTSE 100 was in a better position and kept a neutral mood thanks to the salvation of Prime Minister Boris Johnson who got off with his whole skin intact after a parliament vote of no-confidence. Yet, markets are taking up new identities with a hypertrophied inferiority complex, and they badly need therapy to improve their self-esteem.

Alex Boltyan, senior analyst of Esperio company