Crude oil drops with OECD demand outlook in focus Crude oil drops with OECD demand outlook in focus Crude oil drops with OECD demand outlook in focus

Crude oil drops with OECD demand outlook in focus

Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil prices trade lower for a second day with traders reducing exposure for fear that a sudden banking crisis started by last week’s collapse of the Silicon Valley Bank will spread to the wider economy and trigger a recession, and with that reduced demand for crude oil and fuel products. So far, however the selling has mostly been driven by speculative long liquidation and not yet a notable change in an otherwise supportive demand outlook, driven by non-OECD countries like China and India.

Today's Saxo Market Call podcast
Global Market Quick Take: Europe
Equity market bounce as mean reversion kicks in
FX Update: USD path now depends more on financial conditions than Fed

Crude oil prices trade lower for a second day with traders reducing exposure for fear that a sudden banking crisis started by last week’s collapse of the Silicon Valley Bank will spread to the wider economy and trigger a recession, and with that reduced demand for crude oil and fuel products. With the US economy currently at the epicentre of these concerns, losses during the past week have been most profound in WTI and RBOB gasoline. 

It highlights a widening demand outlook gab between Western nations and Asia, especially China which continues to recover from its extended lockdown period. In their latest oil market report OPEC lower its demand for forecast for OECD countries while raising its demand for non-OECD countries, including China and India. Overall, the group stuck with its call for global demand to rise by 2.3 million barrels a day this year to 101.9 million barrels a day. A projection that is being based on global growth of 2.6% this year, with China’s economy growing by 5.2% while the Eurozone and the US economies will be bumping along at much slower pace of 0.8% and 1.2% respectively. 

The IEA which last month forecast a 2023 increase in oil demand of 2 million barrels a day will release its report on Wednesday. 

With crude oil demand still expected to grow strongly, the short-term direction will likely be dictated by the general level of risk appetite and the signals being sent from the banking sector as well as yields and interest rate developments. 

In addition, the market is also being challenged by long-liquidation from hedge funds who had been almost continuous buyers of Brent crude oil futures since late December. In the week to March 7, the net long reached a 17-month high at 298k lots (298 million barrel), driven by a belief in higher prices but also the curve structure which has remained in backwardation during months of sideways price action. 

The backwardated curve structure provides a long investor with a monthly roll yield, currently around 50 cents, while a short position will be penalized by the same amount. It helps explain why the rangebound and calm market conditions up until now has forced a reduction in the gross short to a 12-year low at just 22k lots, thereby raising the long/short ratio to an elevated 14.5 longs per each short. A position mismatch that raises the risk of a correction should the fundamental and/or technical outlook suddenly change.

WTI meanwhile has due to the opposite curve structure, i.e. a prompt contango around 15 cents, seen a lower interest to buy and hold long positions. In the week to February 21, hedge funds held a 164k net long while the long/short ratio was much more benign at just 3.6.

Source: Bloomberg
Brent crude oil has traded sideways since late November within a 14-dollar wide range averaging $83 during this time. Despite the combination of an elevated long and the banking fallout loss of risk appetite, the current price is less than four dollars below the mentioned average, and it would take a deeper drop for the overall market sentiment to change. OPEC’s decision to cut production last December looks increasingly wise with a pickup in non-OECD being offset by weak OECD demand. At this point the group is likely to stick to its current production levels as long the price stays above $75 and below $100. 
Source: Saxo

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

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

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.