UPDATE: Crude plunges on bearish stocks report

Ole Hansen

Head of Commodity Strategy

UPDATE: Crude oil and products continue lower following a bearish EIA report. Crude oil stocks jumped by 6.8m barrels due to a 1.3m b/d pick up in net imports.

Support came from continued strong refinery demand which reached a record 18m b/d. Stocks at Cushing rose by 1.6m barrels, the first rise in 13 weeks while production was adjusted higher by 100,000 (rounding) to 10.9m b/d.

Following a short-lived relief rally yesterday crude oil has once again turned lower in sympathy with industrial metals. Both commodity groups are under pressure over concerns that the current trade war between the US and China, as well as the Turkish crisis, will spread to other emerging market economies. 

In order to understand why crude oil has been left more exposed to an EM slowdown than before, we need to look at demand growth. According to the IEA via Bloomberg, some 50% of global demand growth in 1999 was driven by non-OECD countries. Today this percentage has risen to 87% and it highlights the current risk to demand from key consumers as their currencies continue to weaken against the dollar. 

Brent crude is once again testing what looks like key support at $71/barrel. 
Source: Saxo Bank
We call it key given the current speculative position held by hedge funds. In the week to August 7, crude oil was sold again with the 27,000-lot reduction in Brent and WTI taking the net-long down to 732,000 lots, the lowest since October. While cutting longs, however, traders remain unprepared for a potential drop below key support. 

The combined gross-short in Brent and WTI at 71,000 lots is close to the lowest seen during the past five years. This as the fear of supply disruption up until now have weighed harder than the risk to demand from trade wars and the recent increase in supply. 
Source: Bloomberg, Saxo Bank
Up next at 16:30 CET we have the Weekly Petroleum Status Report from the EIA covering changes in stocks, production and trade. Some of the weakness seen today has been contributed by the fact that stocks at Cushing, Oklahoma, could see their first weekly rise in 13 weeks. This is according to the American Petroleum Institute who as per usual released their data last night. 
Disclaimer

Saxo Capital Markets (Australia) Pty Ltd 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 Combined 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.

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) Pty Ltd.
Level 25, 2 Park Street
NSW 2000
Sydney
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) Pty Ltd 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 & Combined Financial Services Guide & Product Disclosure Statement 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. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. 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.

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.