background image

Oil surge undone by Apple and AUD

Crude Oil 6 minutes to read
Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Whereas Opec and its friends have previously found it comparatively easy to tweak the oil price by adjusting production, they must now contend with a series of market forces over which they have no control. This time it's different...


Crude oil jumped by more than 7% intraday on Wednesday after an Opec production survey compiled by Bloomberg showed the group had cut production by more than 500,000 million barrels a day to 32.6 million barrels a day last month. This significant drop, which took the market by surprise, was led by a voluntary reduction from Saudi Arabia (420k barrels a day) and unplanned reductions from Iran (120k barrels a day) and Libya (110k barrels a day). The UAE went the other way and have now since last June increased production by almost 500,000 barrels a day to a new record of 3.35m barrels a day. Venezuela, meanwhile, saw its production drop again to reach a near 30-year low.  

The overall drop, which was the biggest since January 2017, occurred before the official January start of the Opec+ accord to cut production in order the halt and reverse the 42%  slide since early October. The problem Opec and other oil producers face at the beginning of the 2019 is the risk of a global slowdown negatively impacting current demand expectations. The economic slowdown risk is particularly apparent in China as earlier in the week it reported the first contraction in its Manufacturing PMI since May 2017.
OPEC output
The 7% rally proved short-lived because Apple in after hours trading dropped by 7% in response to a slowdown in (Chinese) demand. Adding to the market worries about the global economy was the Japanese yen, which at one point overnight surged by 7% against the Australian dollar, a currency often used to gauge the economic outlook in Asia. 

These developments have ensured that crude oil continues to trade in the same volatile manner that was seen towards the end of 2018. The uncertain demand outlook is creating a lot of headaches for producers who cannot just rely on the market to stabilise by cutting production. On that the basis we have seen an increased correlation between stock market moves and movements in crude oil. 

The market is likely to take some comfort from the fact that crude oil production from the Opec+ will continued to drop over the coming months. Sentiment, however, is weak with Trump’s trade war with China a major hurdle that needs resolution before riskier and growth dependent commodities such as oil can begin to recover.

The previous sell-off occurred during a time of rising demand. On that basis producers found it relatively easy to trim output and change the direction of oil. This time is different with Opec and other producers not only having to deal with a renewed pickup in US production. They also have to worry about the global outlook for growth and demand, something over which they have no control, and especially the fact that China,  the world's biggest importer of oil, continues to show signs of economic slowdown.

US shale oil production growth is likely to slow following the price slump. But if the 2014 to 2016 sell-off is anything to go by it may take up to 6 months before the impact becomes visible in the data. 
US production
Brent crude oil has for now settled into a major $50 to $57/b range as defined by the Fibonacci levels below. 
price chart
Source: Saxo Bank

The delayed weekly US inventory report from the EIA covering the week to December 28 will be released on Friday at 16:00 GMT. A Bloomberg survey is currently looking for a drop in crude stock of 2 million barrels while both products are expected to show an increase.

With the current focus on the 2019 direction of crude oil demand the monthly oil market reports from the three major forecaster,  Opec, IEA and EIA, will be watched closely.

Below is the calendar for this month’s publications.

calendar

Quarterly Outlook

01 /

  • 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

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.


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.