Today's Saxo Market Call podcast
Global Market Quick Take: Europe
Crude oil has reestablished some upside momentum after the early August correction ran out of steam before damaging the technical setup, something that is important for technical focused traders who in recent month added length in both WTI and Brent futures amid the outlook for a tight supply following Saudi Arabia’s decision to cut production by 1 million barrels a day from July and onwards. With Brent prices having stalled in the mid-80’s however, the prospect for those Saudi barrels returning to the market anytime soon looks slim and the impact is increasingly being felt across the world as commercial stock levels of crude and fuel products continue to drop.
In the near-term the mentioned production cuts, not only from Saudi Arabia, but also from Russia and others will help support tight market balances in the coming months, but it does not alter our view that rising spare capacity from OPEC producers, as a result of supply constraint, together with rising exports from countries like Iran and Venezuela who are not restrained by quotas, as well as ongoing demand concerns may prevent prices from having a sustained move above $90.
Overall, the current market tightness remains on clear display through the elevated backwardation shown across the time spreads, an example being WTI which has seen its front month spread rise from a 10 cents discount (contango) in late June to a current 50 cents premium while the corresponding spread in Brent commands a 60 cents premium. The positive price action during the past few months has also been supported by elevated fuel product prices, not least diesel which last week traded near $140 per barrel in New York and $128 per barrel in Europe, before trading a tad softer this week.