COMMODITIES 5 minutes to read

Crude oil still supported, but uncertainty lingers

Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil markets are jittery and difficult to forecast, and it all comes down to the uncertainties surrounding the ultimate impact of the US sanctions levied against Iran.


As far as the crude oil trade goes, the only thing that seems to be guaranteed is a potentially volatile Q4 with end-of-year price calls ranging between $70 and $100/barrel.
Enlarge
Source: Bloomberg

The reason for this uncertainty can be highlighted in one chart: Iran’s oil production. At this point we just simply don’t know the full impact of US sanctions on Iran’s ability to produce, let alone export crude oil.

Forecasts range from anywhere from a loss of 500,000 barrels/day all the way to 2 million b/d. The latter forecast, which helped drive crude oil higher on Monday, was given by one of the world’s biggest oil traders on that day in Singapore.

Enlarge
Source: Saxo Bank

The increased tax from higher oil prices on the global consumer is unlikely to become a theme until 2019. There is no doubt, however, that given the current dollar strength some emerging market countries are already seeing oil prices in local currencies getting close to 2011-14 levels. 

Enlarge

The technical and fundamental outlooks both point to higher prices in the short term with Energy Aspects forecasting in an interview with Bloomberg that Q4 could be the tightest quarter for the demand-supply balance in more than decade.  

With Brent having shown little or no interest in challenging the breakout level at $80.50/b, we continue to feel comfortable with our Trade Idea from Monday to be long Brent crude oil.

Enlarge
Source: Saxo Bank

It will be very interesting the see the next COT report due Friday after the close (see COT updates on my twitter account Sunday @ole_s_hansen).

It will cover the week to September 25 and show to what extend hedge funds added long positions on the break above $80.50/b.

The latest oil market updates

Oil gains 1% ahead of shortfall in Iran supply (Reuters)
Oil Brief for September 27, 2018 (Bloomberg)

Enlarge
Source: Saxo Bank

You can access both of our platforms from a single Saxo account.

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)