Oil lower as yields rise and IEA talks down super-cycle risks

In a couple of recent interviews I said that OPEC+ following their March rollover of production will have to increase production in April. Failure to do so could risk send the price of oil lower as the market would see that as a sign of continued demand weakness. Keeping production tight in order to send the price higher into a still weak demand outlook may prove to be counterproductive at this stage in the recovery.

Adding to the markets current unease is the relentless rise in US bond yields which has strengthened the dollar and inadvertently helped reduce the risk appetite across markets, not least commodities where speculators up until recently held a record long position across 24 major commodity futures.

Brent crude oil trades lower for a fifth day, its longest run of losses in six months. While resistance has been established above $70/b, support has yet to be established. Focus on the 21-day moving average, currently at $66.40 followed by $65, the trendline from the November low.

The weekly Commitment of Traders report from the U.S. CFTC breaks down the open interest in commodity futures between producers, swap dealers and money managers or speculators. In the latest update covering the week to March 9 we found that during the past four weeks the 12% rally in crude oil had triggered no additional increase in the combined speculative net long in Brent and WTI crude oil. While rising US bond yields and the stronger dollar, as mentioned, has lowered the general level of investment appetite, these developments also support our view that crude oil has reached a level beyond which can be hard to justify given current fundamentals.

Before today’s main event, the FOMC announcement at 1800 GMT, the US EIA will release its weekly crude and fuel stock report at 1430 GMT, also an hour earlier than normal due to US summertime. Given the result from last nights industry report from the American Petroleum Institute and surveys ahead of today’s release, the market is looking for a return to normal. This following the aftermath of the Texas freeze debacle which helped trigger two weeks of crazy data with refinery outages driven a surge in oil stocks and a record slump in gasoline and distillate stocks.

I will publish the results on my Twitter feed @ole_s_hansen, but with the focus squarely on today's main event, the FOMC meeting, the market impact is likely to be limited.

Earlier in the week I was invited onto the weekly Half-time Talk show organized by Gulf Intelligence in the UAE and published today Wednesday. During our 20 minutes conversation we talked about the super-cycle, what may drive it and more specifically took a closer look at current oil market fundamentals.