Head of Commodity Strategy
Summary: Crude oil reacted decisively positive to yesterday's announcement about a global release of Strategic Reserves. Brent crude initially climbed 3.8 percent and so far today it has managed to hold on to most of those gains in the belief the release is unlikely to have a long-term negative impact on prices. In this update we take a closer look at why the market decided to react in this manner while also looking ahead to EIA's weekly stock report and next week's important OPEC+ meeting.
Crude oil reacted decisively positive to yesterday’s announcement about a global release of Strategic Reserves. Brent crude initially climbed 3.8% and so far today it has managed to hold on to most of those gains in the belief the release is unlikely to have a long-term negative impact on prices.
Some of the reasons behind the bullish reaction to the news are:
Failure to send prices lower may also raise speculation about an outright ban on US crude oil exports, but such a move could potentially cripple domestic refinery activity. Many U.S. refineries can not use the oil currently being produced from fracking as the quality is to light. Instead the US is dependent on imports of heavier grades from Canada, Mexico and OPEC while shipping its light crude oil to refineries that can use it in Mexico, Canada, China, Japan and India.
While the short-term oil market focus is squarely on the December 2 OPEC+ meeting and whether the group agree to delay or reduce planned increases for January and beyond, the market will also try to gauge the current status in the US oil market in EIA’s weekly inventory report.
Last night the API released their weekly update and their assessment of higher crude oil and gasoline stocks both went against surveys pointing to a drop. The report will also shed some light on the current pace of SPR releases which for the last ten weeks has been averaging 1.5 million barrels per week. Furthermore the market will also keep an eye on refinery activity to see whether there is much room for the additional SPR barrels.
Bond. Long Bond(s)
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Althea Spinozzi,
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Charu Chanana,
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Peter Garnry,
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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,
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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
