Head of Commodity Strategy
Summary: Crude oil has gone increasingly stale during the past week as opposing forces keep the market locked in a relative tight range. Traders have instead been looking to the U.S. stock market for inspiration and direction. On tap today the weekly inventory from the U.S. Energy Information Administration. The market will be looking for signs of a potential demand impact from rising infection numbers across the biggest fuel consuming states.
What is our trading focus?
OILUKSEP20 – Brent Crude Oil (September)
OILUSAUG20 – WTI Crude Oil (August)
XOP:arcx – Oil & Gas Exploration & Production
XLE:arcx – Energy Select Sector SPDR Fund (Large-cap US energy stocks)
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Crude oil has gone increasingly stale during the past week as opposing forces keep the market locked in a relative tight range. Three days in a row the August WTI crude oil contract has settled within a 2 tick range, with most of the daily price action taking its cue from movements in the U.S. stock market. The wall of resistance the market has struggle to break above is $41/b, the low on Friday March 6 from where the market gaped lower in response to Saudi Arabia's short-lived price war and just before global demand collapsed.
Almost seven months after the Covid-19 became known outside of China several countries are considering the reintroduction of virus-control measures as the number of infected remains out of control. Not least in the U.S. where the three biggest fuel consuming states are struggling with a rising number of infected and deaths. With OPEC+ production cuts looking solid the market is instead focusing on and worried about the demand impact from the current infection surge.
The U.S. Independent holiday weekend normally signals the beginning of the summer driving season when refineries run flat out to meet demand for gasoline. So far the pick up has failed to emerge with GasBuddy estimating that demand during the holiday weekend was down by more than 22% compared with last year.
WTI crude oil is currently stuck in a tight $41/b to $37/b range and even tighter if focusing on the shown trendline which is currently providing support at $40/b.
Later today at 14:30 GMT the U.S. Energy Information Administration will publish its 'Weekly Petroleum Status Report'. The American Petroleum Institute in their weekly update last night raised the prospects for a bigger-than-expected rise in crude oil stocks while seeing a small reduction in gasoline stocks.
The market is likely to be focusing on the implied demand for gasoline and distillates as renewed weakness could lead to a price damaging continued counter seasonal rise in fuel stocks.
As per usual I will post the result and market reaction on my Twitter handle @ole_s_hansen.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
