Short-term gain, longer-term pain for crude oil Short-term gain, longer-term pain for crude oil Short-term gain, longer-term pain for crude oil

Short-term gain, longer-term pain for crude oil

Commodities 7 minutes to read
Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil has settled into a relatively tight range above $80/barrel, with forecasts weighing short-term upside risks against the potential of slowing demand growth and rising non-Opec production.

Crude oil has settled into a relatively tight, $2/barrel range above $80/b. The break above this level last month helped trigger a rapid extension to almost $87/b on growing speculation that US sanctions against Iran could hit harder than previously expected. The risk of a return to $100/b received a lot of media attention, not least following bullish comments from two of the world’s biggest physical oil traders. 

Source: Saxo Bank

Since then, however, crude oil has returned to $80/b after a jump in US bond yields and the move lower in stocks; both highlighted the risk to global growth from rising yields, rising debt levels and the strong dollar.

In addition, we have seen unusual behaviour from hedge funds who, instead of buying into the strength as they normally do, turned net sellers. During the two-week period up until October 9, the combined net-long in Brent and WTI was cut by 71,000 lots to 757,000 lots, some 30% below the March record. 

Brent and WTI: Managed money

The fact that funds have been selling into the recent strength highlights involvement from macro-oriented funds who look beyond the current upside risk to prices and instead towards the increased risk of slowing demand growth and rising non-Opec production. In the very short term, the market positioning highlights the risk of a deeper correction below $80/b. However, given the not-yet-known impact on Iran’s ability to produce and export, we would see such an event as a buying opportunity.

The risks to prices from lower demand growth, trade wars, and rising non-Opec production are unlikely to impact the market until next year. 

Later today at 14:30 GMT, the US Energy Information Administration will release its Weekly Petroleum Status Report. Oil received a small boost last night after the American Petroleum Institute said that crude stocks dropped by 2.1 million barrels last week instead of rising by 2.5m as per the most recent forecast. Crude stocks at Cushing, meanwhile, look set to rise for a fourth consecutive week as stock levels continue to recover after hitting a four-year low back in August.

EIA Petroleum Status Report
US crude stocks continue to track close to their five-year average while the seasonal drop in refinery demand should see gasoline stocks rise further above its long-term averages. The combination of lower crude oil imports and rising exports saw US net-import drop to a record low of just 4.8 million barrels/day in the week to October 5. On a four-week average basis, it stood at 5.9m b/d, just a couple of hundred thousand barrels above the December 2017 low.  

In our Quarterly Outlook published today, we highlight some of the reasons why Brent crude oil could finish the year anywhere between $75 and $95/b. 
Crude oil


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.