Commodity Weekly: Russian production cut lifts crude oil Commodity Weekly: Russian production cut lifts crude oil Commodity Weekly: Russian production cut lifts crude oil

Commodity Weekly: Russian production cut lifts crude oil

Ole Hansen

Head of Commodity Strategy

Summary:  The commodity sector spent the first full week of February recouping some of the losses that hit the market after a stronger than expected US job report hit risk sentiment. Into the mix, we saw industrial metals adopt a more cautious stance with expectations for a strong demand rebound from a reopening China being delayed. Crude oil came top supported by Russia's decision to cut production of its sanctioned oil while gold, in correction mode, was looking to next weeks US CPI for direction

Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team

The commodity sector spent the first full week of February trying to recoup some of the losses that hit the market after a stronger than expected US job report hit risk sentiment as the dollar strengthened and US Treasury yields moved higher in anticipation of additional US rate hikes followed by a prolonged period before any cut would be contemplated. Into the mix, we saw industrial metals adopt a more cautious stance with expectations for a strong demand rebound from a reopening China being moderate and delayed.

Meanwhile, the energy sector, having recently gone through a long-liquidation phase from overeager hedge fund bulls, received a bid after Russia, faced with a sanctions related drop in demand for its crude oil and fuel products, decided to cut March production by 500,000 barrels per day. Overall, the Bloomberg Commodity Index hit a one-year low earlier in the week after the strong US job report drove profit taking across the board. Since then, the mentioned energy-led recovery has seen it show the first weekly rise in three.

Saxo's short-term outlook looking at broken models
Earlier in the week, Saxo released its short-term market
outlook titled "The models are Broken" and, in the commodity section, we highlighted the reason we believe the sector will see another positive year, the third in a row. This was driven by increased demand from China – the world’s top consumer of raw materials. Other major economies and regions may avoid or end up witnessing only a mild recession. These drivers being supported by deglobalisation leading to on- and friend shoring of production, geopolitical driven supply issues, the green transformation underpinning demand for metals, central banks providing a soft floor under gold and the prospect for a weaker dollar and eventually lower yields also providing support.

Developments that have occurred since writing the outlook have been mixed without altering our forecasts. We were concerned about the early January jump in China-centric commodities, amid speculation about an imminent surge in demand as the country emerged from underneath the Covid cloud that had held back the economy for the past couple of years. It made us conclude that while we believed the rally we saw across the industrial metal space and crude oil were correct in terms of the direction, the timing was wrong by a few months. Not least considering it will take time before rising demand will have a meaningful impact on the supply which has been rising in China during the past few weeks in anticipation of rising demand. 

Continued strength in US data has forced the Fed to turn up the hawkish rhetoric in order to steer the market away from expectations that a one or two-and-done rate hike(s) will be followed swiftly by rate cuts. This development has seen gold run into an overdue correction, taking it back below support-turned-resistance in the 1900 area with further weakness carrying the risk of an extension towards $1828, the 38.2% retracement of the run up from early November.

Source: Saxo

Russian production cut to speed up the move towards tighter supply

On Friday, Russia announced a unilateral cut in its March crude oil output by 500,000 barrels a day, apparently without consulting with its OPEC+ partners first. Since the introduction of EU and G7 sanctions on crude oil from December and fuel products from early February, Russia has increasingly been forced to cut its selling price as its client base continued to dwindle. While talking about retaliatory measures the move has probably more to do with the lack of demand forcing the reduction in order to reduce the discount Russia is currently forced to sell its crude and fuel products at.

While jumping 3% on the news, Brent crude oil continues to trade within a range that has prevailed since November. However, the output reduction, which is the equivalent of about 5% of Russia’s January output, will support and potentially speed up a move towards higher crude oil prices – a development that was not expected until later in the year when a pick-up in Chinese demand became more apparent. If that ends up being the result, the focus will return to OPEC and its resolve to maintain stable prices by potentially adding barrels to offset the loss of Russian barrels at a time where global demand look set to remain robust.

Brent crude, rangebound since November traded above its 21-day moving average on Friday, still below the trendline from the 2022 high and recent resistance in the 89 to 90 area. In our outlook, we look for Brent to spend the first quarter trading in the 80’s before moving into the 90’s as demand picks up. The Russian decision may speed up the timing of a break. However, in the short-term, US data – especially next week’s CPI print – may hold an equally large sway over the market given its potential impact on risk appetite and the dollar.

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.