Head of Commodity Strategy
Summary: Although the US president is gunning for lower crude oil prices this is a battle he's unlikely to win given Saudi and Russian ambitions for higher prices. Still, if it's any solace to Trump, flagging global growth will keep a lid on things.
Nevertheless, US production growth is phenomenal. To go from 9 million b/d to 13 million b/d in three to four years! This helps limit the upside potential for crude oil prices on global markets. However, we should keep in mind that the last rally in crude oil prices mainly resulted from Opec policy. Production in Opec countries was growing until last November when they realised that prices were slumping. Since then, Opec members cut production by approximately 2 million b/d.
We should also take another factor into account. Not much of the data on the market is actually up to date. Many of them are published on a quarterly or monthly basis, and with a lag at that. The only major market with weekly data is the US. As Saudi Arabia is fully aware of the related possibilities, in order to support the bounce, it reduced its crude oil exports to the US. So the market can see that they are limiting supplies and that they react. This is combined with the situation in Venezuela.
Therefore, we can safely say that many factors led to an increase in prices. However, although Opec and Russia can control a large part of supply, they cannot control demand. And this demand will be affected by the economic slowdown. Crude oil prices cannot rise when growth is slower – it would only intensify the slowdown.
It should also be noted that when crude oil prices reached $85/b last year the dollar was strong, interest rates were hiked and debt was rising. This affected many emerging markets. Take India for example. The crude oil price in Indian rupees surged as much as 80%. Then it slumped and the slump supported the Indian economy and many other EM economies. We cannot have rising crude oil prices combined with stronger dollar and fading global growth.
*Ole Hansen's comments above were originally published in a wide-ranging interview in the Polish business and financial newspaper, Parkiet.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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)
