Back
Details Cookies
United Kingdom
Important margin product information

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.

Cookie policy

This website uses cookies to offer you a better browsing experience by enabling, optimising and analysing site operations, as well as to provide personalised ad content and allow you to connect to social media. By choosing “Accept all” you consent to the use of cookies and the related processing of personal data. Select “Manage consent” to manage your consent preferences. You can change your preferences or retract your consent at any time via the cookie policy page. Please view our cookie policy here and our privacy policy here

Oil lower as yields rise and IEA talks down super-cycle risks Oil lower as yields rise and IEA talks down super-cycle risks Oil lower as yields rise and IEA talks down super-cycle risks

Oil lower as yields rise and IEA talks down super-cycle risks

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil continues to show signs of having reached its short-term potential with the current weakness being driven by a combination of rising US bond yields ahead of today's FOMC meeting and after the International Energy Agency toned down the potential for a tight supply driven super-cycle in crude oil.


What is our trading focus?

OILUKMAY21 – Brent Crude Oil (May)
OILUSAPR21 – WTI Crude Oil (April)

____________________________________________________________________________________________________

Crude oil continues to show signs of having reached its short-term potential with the return to the lower end of its current range being driven by a combination of rising US bond yields ahead of today’s FOMC meeting and after the International Energy Agency toned down the potential for a super-cycle in crude oil.

In their latest monthly Oil Market Report, the IEA raised questions about some of the reasons that has supported Brent crude oil’s recent surge to $70/b. Especially the risk of a new super-cycle and a looming shortfall was given a cold shoulder. Not only do they see ample oil inventories despite a steady decline from the massive overhang that piled up during 2Q20. The also highlighted the hefty amount of spare production capacity, currently in the region of 8 million barrels/day that is being held back by OPEC+ members.

With the recovery in fuel demand still fragile, global demand look set to grow by 5.5 million barrels/day in 2021 according to averaged estimates from IEA, EIA and OPEC, and it will not return to pre pandemic demand levels before 2023. With these developments in mind it is clear that the 80% rally since early November, when the first vaccine news broke, has primarily been driven by OPEC+ withholding production.

In a couple of recent interviews I said that OPEC+ following their March rollover of production will have to increase production in April. Failure to do so could risk send the price of oil lower as the market would see that as a sign of continued demand weakness. Keeping production tight in order to send the price higher into a still weak demand outlook may prove to be counterproductive at this stage in the recovery.

Adding to the markets current unease is the relentless rise in US bond yields which has strengthened the dollar and inadvertently helped reduce the risk appetite across markets, not least commodities where speculators up until recently held a record long position across 24 major commodity futures.

Brent crude oil trades lower for a fifth day, its longest run of losses in six months. While resistance has been established above $70/b, support has yet to be established. Focus on the 21-day moving average, currently at $66.40 followed by $65, the trendline from the November low.

Source: Saxo Group

The weekly Commitment of Traders report from the U.S. CFTC breaks down the open interest in commodity futures between producers, swap dealers and money managers or speculators. In the latest update covering the week to March 9 we found that during the past four weeks the 12% rally in crude oil had triggered no additional increase in the combined speculative net long in Brent and WTI crude oil. While rising US bond yields and the stronger dollar, as mentioned, has lowered the general level of investment appetite, these developments also support our view that crude oil has reached a level beyond which can be hard to justify given current fundamentals.

Before today’s main event, the FOMC announcement at 1800 GMT, the US EIA will release its weekly crude and fuel stock report at 1430 GMT, also an hour earlier than normal due to US summertime. Given the result from last nights industry report from the American Petroleum Institute and surveys ahead of today’s release, the market is looking for a return to normal. This following the aftermath of the Texas freeze debacle which helped trigger two weeks of crazy data with refinery outages driven a surge in oil stocks and a record slump in gasoline and distillate stocks.

I will publish the results on my Twitter feed @ole_s_hansen, but with the focus squarely on today's main event, the FOMC meeting, the market impact is likely to be limited.

Earlier in the week I was invited onto the weekly Half-time Talk show organized by Gulf Intelligence in the UAE and published today Wednesday. During our 20 minutes conversation we talked about the super-cycle, what may drive it and more specifically took a closer look at current oil market fundamentals.

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/en-gb/legal/disclaimer/saxo-disclaimer)

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

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

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 Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML 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.

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 Markets 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.