Head of Commodity Strategy
The main driver of these supply concerns remains the US sanctions against Iran which have already started to have an impact on Tehran's ability to sell its crude abroad. This is forcing the return of floating storage with Bloomberg reporting that at least five Very Large Crude Carriers (VLCC) have anchored off the Iranian coast in the past couple of weeks.
Together with Russia, Opec producers with spare capacity are unlikely to make up the shortfall from Iran. This development is driven by the current divergence in the shape of the WTI and Brent crude oil curves. While Brent has seen the front end of the curve flip from contango to backwardation (from loose to tight supply) during the past month, WTI has only managed a general shift higher as the prompt price rallied.
This development has helped trigger a jump in Brent’s premium over WTI to $10/b.
Also driving the change has been the ongoing problems with bottlenecks within the US – something that has become increasingly painful for producers from the Permian shale region in Texas. Lack of pipeline takeaway capacity has triggered a deep discount between Permian oil and WTI crude oil. As a result, we are beginning to see production growth slowing, something that led the Energy Information Administration in its latest Short Term Energy Outlook to cut US production growth both in 2018 and 2019.
Apart from the EIA’s weekly update on stocks, production, and trade at 14:30 GMT, the market is also keeping a close eye on Hurricane Florence which is expected to slam into North Carolina this weekend. Potentially at risk is a disruption of the Caledonian pipeline, the main artery transporting fuel from the Gulf of Mexico refineries to the metropolitan East Coast. Any disruption could trigger a jump in gasoline and diesel futures given the risk to supplies into New York Harbour, the physical delivery point for RBOB and ULSD futures.
Later today, as mentioned, the attention turns to the Weekly Petroleum Status Report from the EIA. Last night the American petroleum Institute reported a price-supportive 8.6 million barrel draw in crude stocks, somewhat higher than a Bloomberg survey pointing to a two million barrel drop.
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
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