OPEC+ set to open taps on firm crude oil market expectations

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil reacted very calmly to the OPEC+ decision to proceed with plans to add more barrels from May and onwards while a surprise rise in oil stocks reported by the API was offset by equally large reductions in fuel stocks. Brent has been in a recovery mode since the March sell-off with the price stuck in a five dollar upward sloping range currently between $63.50 and $68.50.


What is our trading focus?

OILUKJUN21 – Brent Crude Oil (June)
OILUSJUN21 – WTI Crude Oil (June)

____________________________________________________________________________________________________

Crude oil reacted very calmly to the OPEC+ decision to proceed with plans to add more barrels from May and onwards while a surprise 4.3-million-barrel increase in oil stocks reported by the API was offset by equally large reductions in fuel stocks. 

Despite a virus resurgence in Asia, led by India, which may cut the short-term demand outlook for fuel, OPEC+ still expects world oil demand will rebound by 6 million barrels/day this year. Agreeing with this assumption we find Goldman Sachs who sees 80 dollar oil within six months based on expectations for the biggest demand increase ever seen for a six month period. With these expectations in mind OPEC+ agreed to proceed with its roadmap for increasing output by 2 million barrels/day over the next three months.

While demand is expected to rise strongly, the persistence of Covid-19 cases rising in a number of countries, most noticeable in India and Latin America, raise the risk of another false start as already seen on a couple of occasions in December and March.

Brent has been in a recovery mode since the March sell-off with the price stuck in a five dollar upward sloping range currently between $63.50 and $68.50. Inside this range, the 21-day moving average, currently at $64.90 has been providing some local support.

In our Q2 outlook we wrote: "While Brent is likely to end 2021 somewhere in the $70’s we remain skeptical about the timing as we watch a market that is increasingly in need of a time to cool off and to consolidate. Whether it will be given such a break depends on the speed with which OPEC+ adds barrels back into the market and a continued vaccine-led recovery in global mobility".

Until we see a meaningful suppression of the virus, we see Brent struggling to break above the January 2020 high at $71.75. With continued outbreaks seen across the world, jet fuel demand, which pre-covid accounted for close to 10% of global demand, is likely to see a prolonged road to recovery, while diesel (economic activity) and gasoline (rising mobility and avoidance of public transportation) look set to continue to rise strongly.

Source: Saxo Group

Before today’s FOMC meeting which may impact fuel prices given the link to the dollar, Energy Information Administration will publish its Weekly Petroleum Status Report at 14:30 GMT. Last night the American Petroleum Institute showed a bigger than expected jump in crude oil stocks being offset by equally bigger reductions in fuel stocks. The market will also be looking for further signs of increased mobility through the implied demand through products supplied. Especially gasoline which is getting tantalizing close to break above the psychological 9 million barrels/day mark. As per usual I will published the result and charts on my Twitter profile @ole_s_hansen.

Source: Bloomberg, EIA, API & Saxo Group

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
Beethovenstrasse 33
CH-8002
Zürich
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed here or within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.