background image oil rig at dusk

Virus surge puts oil back on the defensive

Commodities 5 minutes to read
Strats-Ole-88x88
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil has following last week's surge already been forced back on the defensive by a resurgent virus, especially in Asia. Once again - and despite ongoing vaccine rollouts - it is raising questions about whether recently upgraded demand growth forecasts are too optimistic.


What is our trading focus?

OILUKJUN21 – Brent Crude Oil (June)
OILUSJUN21 – WTI Crude Oil (June)

____________________________________________________________________________________________________

Crude oil has once again been forced back on the defensive by a resurgent virus, with most regions apart from Europe experiencing rising case counts. One year ago WTI crude oil hit a historic price at minus $40/b on a combination of a pandemic-led collapse in global demand and rising supply due to a very ill-timed price war between Russia and Saudi Arabia.

Since then OPEC+ has very successfully managed to steer the market back from the brink by making sure supply was kept tight enough to support a reduction in stocks following the massive buildup last year. But just like January when the group was preparing to raise production in anticipation of a vaccine-led recovery in global demand, the market’s expectations for demand growth is once again being challenged by a record rise in coronavirus cases.

Last week crude oil recorded strong gains as the dollar weakened and after OPEC and the International Energy Agency raised their forecast for global demand growth in 2021. However, the coronavirus flare-up in Asia, a very important region in terms of demand, has sent the price of Brent crude oil lower to challenge $65.50/b, the level it broke above last week. OPEC+ has already on several occasions shown they stand ready to adjust and adapt to a changing demand outlook. With this in mind, the risk of a major correction from current levels is small but so is the upside potential. We see the price of Brent crude remain stuck in the 60’s for the remainder of this quarter or until vaccine rollouts significantly changes the demand dynamics.

21olh_oil1
Source: Saxo Group

Adding to the unease since yesterday was an industry report from the American Petroleum Institute showing a rise in US crude stocks while EIA surveys point to a drop of more than 3 million barrels.

Once the EIA report has been published at 14:30 GMT I will, as per usual, publish the result on my Twitter @ole_s_hansen

21olh_oil1b
Source: Saxo Group
21olh_oil2

Disclaimer

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 (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

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.