Head of Commodity Strategy
Summary: Crude oil prices continue lower after tumbling 5% on Tuesday amid fresh technical momentum selling following Monday’s failed attempt to reach safer grounds above $80.50 in Brent and $76.50 in WTI. In the process prices have slumped back to levels last seen during the March banking crisis. Despite OPEC’s best efforts to confront emerging signs of a slower than expected demand outlook for the second half, and to ensure a stable high price for its crude oil, negative price developments since April 2 production cut has rendered these efforts fruitless with short sellers firmly back in control
Today's Saxo Market Call podcast
Global Market Quick Take: Europe
Crude oil prices continue lower after tumbling 5% on Tuesday amid fresh technical momentum selling following Monday’s failed attempt to reach safer grounds above $80.50 in Brent and $76.50 in WTI. In the process prices have slumped back to levels last seen during the March banking crisis which helped trigger the OPEC+ production cut on April 2. However, following a brief spike in response to the cut, the market has since then been on the defensive with technical and macro-economic developments once again favouring those holding short positions.
Despite OPEC’s best efforts to confront emerging signs of a slower than expected demand outlook for the second half, and to ensure a stable high price for its crude oil, negative price developments since April 2 has rendered these efforts fruitless. Not only has Russia’s ability to export its crude and fuel products exceeded most expectations, in addition we are seeing a less commodity intensive recovery in China than during earlier government supported growth sprint. Combining these developments with continued weakness in economic data, especially in the US, and the ongoing crisis among US regional banks, the demand outlook for the second half continues to be downgraded, thereby forcing price downgrades, most recently from Morgan Stanley who have cut their end of year Brent crude oil price by 12.5 dollars to $75 a barrel.
For now, the market will continue to worry about the risk of recession and its impact on demand, a concern that during the past month has been on clear display through a dramatic slump in refinery margins across the major regions, first for diesel and more recently also for gasoline. Diesel which powers heavy machinery such as truck and construction equipment are often seen as the canary in the coalmine and if continued it may lead to lower refinery demand and with that lower demand for crude oil.
Ahead of tonight’s FOMC meeting, previewed in our daily Market Quick Take and discussed in our daily Saxo Market Call podcast, the weekly crude oil and fuel stock report from the EIA is unlikely to attract much attention. The American Petroleum Institute last night reported a 3.9 million barrel draw in US crude stocks, and 1 million barrels in distillates while gasoline stocks increased by 0.4m barrel. Apart from these data the EIA will as per usual also shed some light on production, exports as well as the implied demand for gasoline and diesel.
The April 2 OPEC+ production cut continued to reverberate across the crude oil market, in the most recent reporting week to April 25 through the negative impact of short sellers chasing the gaps and longs that was bought after April 3 being reduced. The combined net long in WTI and Brent crude oil was cut by 54.3k lots to 400k, a four-week low, with reduction being driven by 32.5k lots of long liquidation and 21.8k lots of fresh shorts.
A major driver of the recent crude oil market weakness has been a slump in refinery margins across the major refinery hubs in Asia, the US as well as Europe. Especially the diesel market saw accelerated selling during the reporting week, resulting in the ICE gasoil net flipping to a small net short for only the third time in seven years. Stateside meanwhile, the net long in the ULSD contract (Ultra-Light Sulphur Diesel), previously known as heating oil, was cut by 44% to a 27-month low.
Having broken below $71.53, the 61.8% retracement of the March to April rally, the short-term risk of an extension to the sub-65 low cannot be ruled out.
A new fragmented world order can render some of today's infrastructure obselete, but it also calls for massive new investments across the globe, which requires a new set of strategic and tactical investment strategies.
Steen Jakobsen,
Chief Investment Officer
As globalisation turns to fragmentation, China seems set on playing a role in the global economy, while simultaneously working towards proofing its own economic situation from external shocks and crises.
Redmond Wong,
Market Strategist
The recent bank runs and ensuing challenges are reminicent of something we've seen before. Will it end like the S&L crises of 1986 and 1995?
Chris Dembik,
Head of Macroeconomic Research
Equity markets need to recalibrate to another - fragmented - global world. What's your view on equities in this market - are they going up or down?
Peter Garnry,
Head of Equity Strategy
With every development comes new opportunites, some of which could be in India. Have you considered the country as a part of your diversification strategy?
Charu Chanana,
Market Strategist
A collar is an option strategy that allows some protection while maintaining some upside potential. What investment would you like to use a collar strategy for?
Hans Oudshoorn,
Trainer Academy
There are arguments to be made for many commodities to have upside. Which are you paying the most attention to this quarter?
Ole S. Hansen,
Head of Commodity Strategy
In a very challenging macro environment, which currencies do you think will come out on top?
John J. Hardy,
Head of FX Strategy
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)
