Head of Commodity Strategy
Summary: WTI crude oil has settled into a relative tight range around $53/b ahead of today's delayed U.S. stock report. The global outlook for demand remains challenging with the weak sentiment not being helped by the recent IMF global growth downgrade and uncertainty surrounding trade negotiations between the U.S. and China
Crude oil trades softer but well above key support ahead of the holiday delayed inventory report from the Energy Information Administration at 1500 GMT. Last night the American Petroleum Institute reported a 10.5 million barrel rise in crude oil stocks. Significantly higher than the 2.5 to 3 million barrels surveys are looking for from the EIA.
While a draw would be in line with the seasonal behavior for U.S. stocks a figure close to 10 million barrels would be the biggest increase since February and it would put the last five weeks increase close to 20 million barrels. A combination of a continued slowdown in refinery demand and lower exports due to the recent surge in tanker rates could be the explanation behind a bigger-than-expected inventory rise.
Gasoline and distillate stocks are both expected to continue their seasonally decline. The latter could hit a five-year seasonal low should the report confirm the 2.5 million barrel drop.
WTI crude oil has settled into a relative tight range around $53/b with key support below $51/b and resistance towards $55/b. The global outlook for demand remains challenging with the current weak sentiment not being helped by a recent IMF global growth downgrade and uncertainty surrounding trade negotiations between the U.S. and China. The prompt spread in WTI has sunk to the weakest since January on a combination of rising U.S. production and exporters temporarily being priced out of the market.
U.S. sanctions against China's COSCO Shipping Energy Transportation Co. prompted a recent spike in the cost of chartering Very Large Crude Carriers (VLCC). Before eventually easing this week the cost of transporting crude oil from the US Golf coast to refineries in the far east is likely to have triggered a slowdown in exports, hence the expected rise in crude stocks.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
