Oil hit by recession fears but downside is limited
Head of Commodity Strategy
Summary: Crude oil’s roller-coaster ride continues to create a very challenging environment with the focus alternating between tight supply and the global economic slowdown's impact on future demand growth.
The recession themed sell-off has in our opinion potentially already run its course after Brent crude found support ahead of key support at $60/b. A break below would signal a potential return to the December low which current fundamentals just simply don’t support. The short-term outlook nevertheless hinges on the performance of US stocks and whether speculative longs need to reduce bullish bets further.
For the first time during this recent reduction Brent crude was not immune with the tight supply focus switching to increased risk of lower growth and demand. The 41k lots Brent reduction to 353k was the biggest since last November while the 53% jump in the gross short to 50k lots was the biggest since October.
The monthly Opec oil production survey from Bloomberg published today found that the overall production level held steady in May with reductions from Kuwait (-40 kbp) and not least sanctions-hit Iran (-230 kbp) being offset by increases from Saudi Arabia (+170 kbp), Libya (+60 kbp) and Iraq (+50 kbp).
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