Oil looking for bottom with focus on stocks and trade Oil looking for bottom with focus on stocks and trade Oil looking for bottom with focus on stocks and trade

Oil looking for bottom with focus on stocks and trade

Commodities 7 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  The Opec+ deal to curb production over the coming months has helped stabilise crude oil, but the market remains worried about the ongoing US-China trade war and its potential negative impact on growth and demand into 2019.


The Opec+ deal to curb production to the tune of 1.2m b/d over the coming months has helped stabilise and potentially create a floor in crude oil. However, while the supply outlook has steadied and created some support this week, the market remains worried about the ongoing trade war between the US and China and its potential negative impact on growth and demand into 2019. 

Headline risks, will in other words, continue to be a key driver as we head into the low liquidity part of the year ahead of Christmas and New Year. On that basis the short-term focus in the oil market is less the US Permian Basin, Moscow and Riyadh but more Washington and Beijing. With the political influence on oil prices remaining very elevated we doubt that we will see any major new positioning before a clearer picture emerges.

China's demand for commodities have become more selective this year with natural gas seeing a continued strong rise in demand as the country step up its fight against pollution. Soybeans have been the biggest casualty of the trade war with imports showing a dramatic drop of 4% after rising by 16% during the same period last year. The rise in crude oil imports between January and November has slowed to 8.2%, the lowest annual increase in five years.

In addition to the Monthly Oil Market Report from  Opec at 12:00 GMT, the  market will be turning its attention to the Weekly Petroleum Status Report from the US EIA today at 15:30 GMT. Crude oil is trading higher today after the American Petroleum Institute last night reported a 10 million barrel drop in crude oil stocks last week. Surveys ahead of the EIA report are pointing to a lower but still healthy reduction of 3.5 million barrels. This, on top of the export-led drop of 7.3 million barrels the previous week.  
US refinery demand for crude oil has been picking up in recent weeks as the price gap between WTI and the global market represented by Brent has stayed elevated. With that we are seeing US exports of oil products hitting fresh records while the US net-import of crude oil last week slumped to multi-year low of just 4m barrels/day. These developments triggered the first net-export of US oil and products last week. Although it's likely to be reversed today, the trend however remains clear: record and rising US crude oil production creating a discount to Brent, which supports strong refinery demand and exports. 

A change in the technical and/or fundamental outlook towards a more price-friendly outlook could trigger a strong buy reaction from hedge funds, which have seen a record capitulation in crude oil longs in recent months. The net-long has dropped to just 265 million barrels, a three-year low, and a level from where two strong recoveries have been seen since August 2016.

However, while we still expect to see crude oil climb higher and potentially re-establish a range between $60 and $70/b the question remains if traders now will opt to postpone investment decisions until January.
Source: Saxo Bank
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.