Head of Commodity Strategy
Summary: Crude oil remains stuck near the bottom of a seven-dollar range, that has prevailed for the past month, with mixed signals creating some uncertainty with regards to the short-term direction. Gas prices in Europe and Asia meanwhile has been shooting higher once again with the continued worry about tight supplies this winter being the main driver.
Crude oil remains stuck in a seven-dollar range with mixed signals creating some uncertainty with regards to the short-term direction. The downside risk is currently being supported by the risk of a joint U.S. and China stockpile release in order to cool prices and ease elevated fuel costs in both countries. In addition, we are once again seeing travel stocks trailing the overall market as the risk of a Covid-driven reduction in mobility is rising around the world.
In addition, the latest monthly Oil Market Reports from the EIA and most recently from the IEA points to a reduced risk of higher prices as moderating demand growth due to another Covid wave and weaker industrial activity, partly due to higher oil and gas prices, combined with a steady rise in supply will support a balanced market sometime in early 2022.
Against this potential price negative developments, we find support from a renewed surge in European and Asian gas prices driving increased demand for fuel products such as diesel, heating oil and propane at the expense of gas. During the past three trading sessions, the price of Dutch TTF benchmark gas has jumped by one-third to €100/MWh or $33/MMBtu, more than six time higher than the long-term average price.
Initially the rally was driven by disappointment over Gazprom’s lack of interest in booking additional pipeline capacity for December via key supply lines through Poland and Ukraine. However, most of the damage was done following yesterday’s announcement that the controversial Nord Stream 2 pipeline would face further delays. This after German regulators suspended the certification process while waiting for the operator to set up a German subsidiary that would own the section German section of the pipeline. In the latest twist, the German regulators on Wednesday said the suspension of licensing NS2 could delay commissioning to March 2022.
Adding insult to injury, short-term weather forecasts point to below seasonal temperatures in Europe into early December while Russia looks set to be warmer. Potentially and under normal circumstances a good incentive for Gazprom to ship more gas to Europe.
The crude oil market, as mentioned, is currently trying to navigate opposing forces, the sum of which for now is keeping both WTI and Brent crude oil locked in a seven-dollar range. Money managers and large speculators have been net sellers of Brent crude oil for the past five weeks, this during a time where the price rallied to but failed to break the 2018 high at $86.75. The latest Commitments of Traders report covering the week to November 9 showed a drop in the Brent crude net long to a one-year low at 240k lots or 240 million barrels. At the same time, falling stocks at Cushing, the WTI delivery hub has provided some relative support, thereby kept the net length close to unchanged around 340k lots.
Later today, the market attention once again turns to the weekly US inventory report. According to surveys and last night's update from the American Petroleum Institute, the Energy Information Administration is expected to show another rise in crude oil stocks while gasoline stocks, already at a four-year low, is expected to drop even further. Also in today’s report, traders will be looking out for a change in production and whether additional barrels have been released from Strategic Reserves on top of the 12m million barrels that have been fed into the market during the past couple of months.
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
