Understanding the curves
Crude oil has rallied by nearly 40% year-to-date. However, this recovery was arguably driven by temporary geopolitical factors (supply outages in Iran & Venezuela), which is reflected by a steadily rising front-end of the futures curve. In contrast, the long-end of the curve, which reflects the long-term outlook of both supply and demand has remained anchored over the last four months. As the OECD and IMF continue to downgrade global growth forecasts, oil markets are expecting weaker long-term oil demand. Consequently, the current rally in oil prices could start to lose steam amid a weaker growth backdrop.
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