What's next for crude oil, post-Opec?

What's next for crude oil, post-Opec?

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Brent crude oil prices rallied strongly on Friday after Opec and its allies agreed to increase crude oil production in order to bring their collective over-compliance closer to 100%.

This came following months of falling production, primarily due to a continued decline in output from Venezuela. 

Opec/Venezuela

With the cartel and its allies failing to provide a firm number, the market rallied in the belief that the deal would see production rise by no more than 600,000 barrels/day over the coming months. Saudi Arabia, however, set the record straight on Saturday when it signalled a real boost to supply of closer to one million barrels/day.

At the same time, Saudi oil minister Khalid Al-Falih said that the country would do whatever necessary to keep the market in balance. The rise of Brent crude oil to $80/barrel last month triggered a wave of protests from the likes of US president Donald Trump and several emerging market governments worried that rapidly rising oil prices would hurt growth and subsequent demand. 

Politics were never far away at this meeting with Iran and Venezuela balking at the proposal to raise production given that they felt victimised by US sanctions. This was clear on Friday when the Opec President and UAE oil minister Suhail Al Mazrouei struggled to present what was a vaguely worded statement. What matters the most is what the world’s biggest producers say, and with Russia and Saudi Arabia firmly supporting a production increase towards one million b/d, Brent crude has drifted lower today. 

While Brent has responded to the increased supply by drifting lower, WTI crude oil is a different story. During the past few session, WTI’s discount to Brent, the global benchmark, has more than halved. The first part of the move was triggered by the reduced Brent risk premium as the market began pricing in more supply. 

Brent-WTI Spread
ᅟᅟ

The latest spike since Friday, however, has primarily been driven by events in North America. The prompt WTI spread between August and September blew out on Friday following an outage at an oil-sands facility in in Canada run by Syncrude. A total production of 350,000 b/d could be impacted until the end of July resulting in fewer barrels being sent south via pipelines to Cushing, the delivery hub for WTI crude oil. 

An accelerated stock decline at Cushing would support prompt spreads by creating a tighter market around this important hub. Even the near $2.5/b premium seen today between August and October has so far done little to attract selling from traders holding physical oil at Cushing...  

Cushing Inventories
ᅟᅟ

In the short term we are likely to see crude oil being supported by continued geopolitical risks related to supply concerns from Venezuela and particularly Iran as the deadline for the implementation of US sanctions approaches. These concerns may, however, eventually be replaced by a shifting focus towards a continued rise in non-Opec supply and demand growth which may begin to suffer due to a slowdown among EM economies.

Saudi Arabia and Russia seem to have drawn a line at $80/b as the level above where they fear that demand destruction could emerge. On that basis, we maintain the view that Brent crude oil over the coming months will remain rangebound between $71/b and the low $80s before downside price pressure begins to emerge ahead of year-end and into 2019. 

Crude oil
ᅟᅟ

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.

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

Contact Saxo

Select region

International
International

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

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