background image

Oil looking for bottom with focus on stocks and trade

Commodities 7 minutes to read
Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  The Opec+ deal to curb production over the coming months has helped stabilise crude oil, but the market remains worried about the ongoing US-China trade war and its potential negative impact on growth and demand into 2019.


The Opec+ deal to curb production to the tune of 1.2m b/d over the coming months has helped stabilise and potentially create a floor in crude oil. However, while the supply outlook has steadied and created some support this week, the market remains worried about the ongoing trade war between the US and China and its potential negative impact on growth and demand into 2019. 

Headline risks, will in other words, continue to be a key driver as we head into the low liquidity part of the year ahead of Christmas and New Year. On that basis the short-term focus in the oil market is less the US Permian Basin, Moscow and Riyadh but more Washington and Beijing. With the political influence on oil prices remaining very elevated we doubt that we will see any major new positioning before a clearer picture emerges.

China's demand for commodities have become more selective this year with natural gas seeing a continued strong rise in demand as the country step up its fight against pollution. Soybeans have been the biggest casualty of the trade war with imports showing a dramatic drop of 4% after rising by 16% during the same period last year. The rise in crude oil imports between January and November has slowed to 8.2%, the lowest annual increase in five years.

crude oil
In addition to the Monthly Oil Market Report from  Opec at 12:00 GMT, the  market will be turning its attention to the Weekly Petroleum Status Report from the US EIA today at 15:30 GMT. Crude oil is trading higher today after the American Petroleum Institute last night reported a 10 million barrel drop in crude oil stocks last week. Surveys ahead of the EIA report are pointing to a lower but still healthy reduction of 3.5 million barrels. This, on top of the export-led drop of 7.3 million barrels the previous week.  
crude oil
US refinery demand for crude oil has been picking up in recent weeks as the price gap between WTI and the global market represented by Brent has stayed elevated. With that we are seeing US exports of oil products hitting fresh records while the US net-import of crude oil last week slumped to multi-year low of just 4m barrels/day. These developments triggered the first net-export of US oil and products last week. Although it's likely to be reversed today, the trend however remains clear: record and rising US crude oil production creating a discount to Brent, which supports strong refinery demand and exports. 
crude oil

A change in the technical and/or fundamental outlook towards a more price-friendly outlook could trigger a strong buy reaction from hedge funds, which have seen a record capitulation in crude oil longs in recent months. The net-long has dropped to just 265 million barrels, a three-year low, and a level from where two strong recoveries have been seen since August 2016.

crude oil
However, while we still expect to see crude oil climb higher and potentially re-establish a range between $60 and $70/b the question remains if traders now will opt to postpone investment decisions until January.
crude oil
Source: Saxo Bank

Quarterly Outlook

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

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. Android is a trademark of Google Inc.

©   since 1992