Our approach when building views on oil is to assess demand, supply, inventories, and technicals, and we would need to see meaningful signs from not just one, but a majority of these factors in order to shift to a positive view.
While quite a lot of negativity on the demand picture is already priced in, this is unlikely to turn around until signs of coronavirus spread slows or halts.
While the supply glut can be mostly mitigated by a curb on production, the brinkmanship of Russia and Saudi Arabia is unlikely to disappear in the near term, absent a surprise political agreement.
This will only happen if the world’s major producers, including the US, coordinate on a larger scale.
The market is also struggling to find a home for surplus barrels, which is seeing prices extend ever lower and forcing production down further.
Demand stabilisation is at the mercy of the virus, and supply cuts are unlikely to tip the balance towards higher prices in the near term.
But we are more optimistic on a positive turn in prices over the medium-term and would look to add some oil beta in the near future given the attractive entry point.
Louise Fribourg is markets research analyst at Fidelity International