Crude oil remains bid with focus on OPEC+ and EIA stock report

Crude oil remains bid with focus on OPEC+ and EIA stock report

Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil continues higher with WTI and Brent both reaching levels last seen in 2018, thereby going against a recent trend of profit taking hitting other major commodities in metals and agriculture. While the energy sector remain supported by an ongoing recovery in global fuel demand and tightening supply, controlled by OPEC+, other sectors have been hurt by a stronger dollar, improved crop weather and Chinese efforts to curb metal prices.


www.webinars.saxo

Crude oil continues higher with WTI and Brent both reaching levels last seen in 2018. This during a period where rallies across other commodities, especially in metals and key crops have run into corrections. While the energy sector remain supported by an ongoing recovery in global fuel demand and tightening supply, controlled by OPEC+, other sectors have been hurt by a stronger dollar, improved crop weather and Chinese efforts to curb metal prices.

These developments have during the past few weeks triggered a rotation by speculators out of metals and agriculture into energy. The combined net long in oil and fuel products (ex. natural gas) reached 977k lots in the week to June 15, the biggest bet on rising energy prices since October 2018, but still 33% below the January 2018 record. While industrial metals have suffered what looks like a short-term setback on rising market intervention by Chinese authorities and reduced focus on reflation, the energy sector has increasingly become the go to commodities.

This in the belief that OPEC+ in the near-term will manage production increases in a manner that ensures continued price support as global demand continues to recover, and later on due to increased concerns that lack of CAPEX spent on new production could leave the market undersupplied from late 2022 and onwards.

The combined net long Brent and WTI crude oil reached 737k lots, again a level of exposure that was last exceeded in October 2018. A tightening spread to Brent and speculation that storage levels at Cushing, the WTI futures delivery hub, could shrink further amid strong Midwest refinery demand helped drive a 35% reduction in the gross short, thereby supporting a spike in the long/short ratio to a three-year high at 22.8 longs per one short position. While highlighting the risk a market at risk of becoming one-sided it also shows the strong belief in higher prices currently being exhibited by investors.

In our daily podcast, which you can find by searching for “Saxo Market Call” on any of your favorite podcast channels, we discussed the reasons why WTI crude oil has led the recent rally. Once again just like during the market panic last April, the focus has returned to Cushing, the massive storage hub where WTI futures contracts are exchanged for physical oil. On April 20 last year WTI crude oil temporarily hit minus 40 dollars per barrel as a Covid-related collapse in demand almost led to storage tanks topping out. Fast forward to today and we find US oil production still lingering some 2 million barrels per day below the pre-pandemic peak as the sector struggles to find a gear amid a change in the focus.

Strong Midwest refinery demand as fuel demand continues to recover and the mentioned slow recovery in US shale production has left Cushing stocks trailing their five-year average.

Later today at 14:30 GMT the EIA will publish its “Weekly Petroleum Status Report” and following last nights update from the American Petroleum institute, the market is looking for a fifth consecutive draw in crude stocks with 2.6 million being at Cushing. Result can be found on my Twitter @ole_s_hansen.

Increasingly, however, the oil market focus will turn to next week’s OPEC+ meeting, and through the actions or inactions of the group the market will be sent a clear signal whether its price stability through raising production or higher prices that the group will be seeking. Once again we may find Russia and Saudi Arabia on each side of the argument, but as per usual and as we grown accustomed to in recent months, the group will undoubtedly find a compromise that suits both sides.

WTI comment from our technical analyst Kim Cramer
In the short-term WTI crude oil continues to trade within a rising channel, and the uptrend will stay intact as long the price stays $69.75.

On a slightly longer-term chart we can see WTI is nearing strong resistance towards $77, the 2018 peak. If penetrated it may extend its 5 wave all the way to around $85. RSI seems to building up divergence but the jury is still out as to whether the uptrend has reached a level of exhaustion.

Source: Saxo Group

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • 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

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

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 https://www.home.saxo/en-au/legal/.

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 (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

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

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

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.