Head of Commodity Strategy
The main driver of these supply concerns remains the US sanctions against Iran which have already started to have an impact on Tehran's ability to sell its crude abroad. This is forcing the return of floating storage with Bloomberg reporting that at least five Very Large Crude Carriers (VLCC) have anchored off the Iranian coast in the past couple of weeks.
Together with Russia, Opec producers with spare capacity are unlikely to make up the shortfall from Iran. This development is driven by the current divergence in the shape of the WTI and Brent crude oil curves. While Brent has seen the front end of the curve flip from contango to backwardation (from loose to tight supply) during the past month, WTI has only managed a general shift higher as the prompt price rallied.
This development has helped trigger a jump in Brent’s premium over WTI to $10/b.
Also driving the change has been the ongoing problems with bottlenecks within the US – something that has become increasingly painful for producers from the Permian shale region in Texas. Lack of pipeline takeaway capacity has triggered a deep discount between Permian oil and WTI crude oil. As a result, we are beginning to see production growth slowing, something that led the Energy Information Administration in its latest Short Term Energy Outlook to cut US production growth both in 2018 and 2019.
Apart from the EIA’s weekly update on stocks, production, and trade at 14:30 GMT, the market is also keeping a close eye on Hurricane Florence which is expected to slam into North Carolina this weekend. Potentially at risk is a disruption of the Caledonian pipeline, the main artery transporting fuel from the Gulf of Mexico refineries to the metropolitan East Coast. Any disruption could trigger a jump in gasoline and diesel futures given the risk to supplies into New York Harbour, the physical delivery point for RBOB and ULSD futures.
Later today, as mentioned, the attention turns to the Weekly Petroleum Status Report from the EIA. Last night the American petroleum Institute reported a price-supportive 8.6 million barrel draw in crude stocks, somewhat higher than a Bloomberg survey pointing to a two million barrel drop.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
