Crude oil rises on upbeat demand outlook and China stimulus focus Crude oil rises on upbeat demand outlook and China stimulus focus Crude oil rises on upbeat demand outlook and China stimulus focus

Crude oil rises on upbeat demand outlook and China stimulus focus

Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil trades higher for a second session, supported by raised expectations that Beijing is considering a broad range of measures to rivive a sputtering economy. In addition, an in-line CPI print on Tuesday has raised expectations the FOMC may keep rates unchanged at today's meeting. OPEC and the IEA meanwhile maintains an upbeat estimate for global oil demand in 2023 but with half of the increase expected to occur during the next quarter, there will be some room for disappointment should demand fail to rise at that rate.


Today's Saxo Market Call podcast
Global Market Quick Take: Europe


Crude oil prices trade higher for a second day after the IEA joined OPEC in delivering an upbeat assessment of the short-term demand outlook. In their monthly ‘Oil Market Reports’ for June both OPEC and the IEA raised their outlook for 2023 global demand, the IEA by 0.2 million barrels a day to 2.4 million barrels a day bringing total consumption to a record 102.3 million barrels a day. Ahead of these upbeat reports, oil prices were already being supported by an improved across-market risk sentiment, and the prospect for fresh initiatives being taken by the Chinese government to support a sputtering economy.

The overall sentiment among oil market analysts has in recent month been heavily leaning to a tightening crude oil market during the second half, and following the latest production cut from Saudi Arabia, the market is slowly coming around to the idea it may happen. With supply being kept tight, the potential for a deficit is rising, not least given the prospect of stimulus supporting Chinas economy and recession worries elsewhere potentially having been priced in already. However, with almost half of OPEC’s expected 2.5 million barrels a day rise in 2023 demand being pencilled in for the next quarter, there will be some room for disappointment should demand fail to rise at that rate.

With that in mind, we continue to forecast a rangebound market in the coming months, until the direction of key economies, including China and the US becomes clearer. The bottom of that range increasingly looks like having been established below $72 in Brent where three consecutive selling attempts have been rejected, potentially highlighting a concern that lower prices may trigger another production response from OPEC.

Speculators, such as hedge funds and CTAs responded to the Saudi production cut and subsequent 3% rally in the week to May 6 by raising their WTI and Brent combined crude oil long by the most in nine weeks. The 30k contract increase to 301.5k, a six-week high, was primarily driven by fresh longs in Brent and short covering in WTI. Overall, the net long remains well below the pre-banking crisis peak at 491k contracts, and it highlights a market suffering from loss of momentum amid global growth worries.

Ahead of today’s FOMC meeting, the oil market will watch out for any surprises in EIA’s weekly crude and fuel stock report. Data from the American Petroleum Institute released last night points to an across the board rise in oil and fuel stocks between one and two million barrels. Apart from the headline numbers, the market will also pay some attention to production which recently reached an April 2020 high and crude oil exports following a near 50% in the previous week. In addition, refinery demand will also be watched after runs reached 95.8% of capacity and highest since August 2019.

OPEC’s focus on supply management will likely enforce the view of a soft floor under the market, currently around $72 in Brent as mentioned, while an upside break seems equally unlikely as long the focus remains on a weakening economic outlook. From a technical standpoint, $80 area in Brent will likely offer a great deal of resistance and funds positioned for additional weakness are unlikely to change their negative price view until we see the return of an 8-handle.

Source: Saxo
Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.