Goldman Sachs view of much higher prices is based on:

• demand exceeding what is currently expected
• supply staying low, inventories falling
• and markets not positioned for a rising price

• he only rational explanation in our view is destocking as commodity consumers deplete inventories at higher prices, believing they can restock once a broad softening creates excess supply. Yet should this prove incorrect and excess supply does not materialize as we expect, the restocking scramble would exacerbate scarcity, pushing prices substantially higher this autumn potentially forcing central banks to generate a more protracted contraction to balance commodity markets.
• Instead, markets appear to be pricing a soft landing outcome: minimal further increases in interest rates dissipating inflation and sufficient economic growth to keep earnings well-supported into 2023.
• In our view, macro markets are pricing an unsustainable contradiction – it is difficult to square a softening FCI, a more accommodative Fed pivot, falling inflation expectations and drawing commodity inventories.

Reuters have collated a couple of analyst comments on the mixed messaging. The lack of clarity looks to have locked in price volatility for now:

• “There’s a great deal of uncertainty about demand in the short run. Until that settles, it (the market) will be like this for a while,” said Justin Smirk, a senior economist at Westpac.
• “The net picture that the IEA painted was a mix,” said Commonwealth Bank analyst Vivek Dhar. “Russian supply has been more resilient than thought.” “Assessing global oil balances by the end of the year right now, given what’s happening on the demand side versus what’s happening on supply side – it’s just complicated. That’s why you have the daily volatility.”

Good news for short-term traders?

• Prior was +4467K
• Gasoline -4978K vs -633K expected
• Distillates +2166K vs -667K expected
• Refinery utilization +3.3% vs +0.7% expected
• SPR draw of 5.3m
• Implied gasoline demand 9.12m vs 8.54m last week

The Wall Street Journal (gated) with this on the latest on the talks:

• Negotiations between Iran and the U.S. on reviving the 2015 nuclear deal are close to completion, the European Union’s senior negotiator at the talks said Sunday evening, but it remained unclear whether Tehran will accept the final deal.
• The text of an agreement could be closed in coming hours, said the EU’s Enrique Mora, the coordinator of the talks. However, Iran must still decide whether to set aside its demand that the nuclear deal can only be revived if a multiyear United Nations atomic agency probe into its nuclear program is closed.

Oil traders are watching the negotiations. If agreement is cemented it’ll (eventually) mean more Iranian oil flowing back to global markets. Both the US and Iran would be in favour of this.

Stay tuned I guess.

Oil update: