Oil update: Short term headwinds vs. longer term opportunities

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil remains stuck in neutral and has during the past month, and in line with several other commodities, been struggling to find a gear. Triggered by a market torn between focusing on the prospect for stronger growth and increased vaccine-led mobility and the impact of continued virus flare-ups, and rising US shale oil production just as OPEC+ prepares to add supply.

What is our trading focus?

OILUKJUN21 – Brent Crude Oil (June)
OILUSMAY21 – WTI Crude Oil (May)


Upcoming events:

Today at 12:00 GMT: OPEC’s Monthly Oil Market Report
Today at 20:30 GMT: Weekly storage report from the American Petroleum Institute
Wednesday: IEA’s Oil Market Report
Wednesday: EIA’s Weekly Petroleum Status Report


Crude oil remains stuck in neutral and has during the past month, and in line with several other commodities, been struggling to find a gear. While the whole commodity sector has run into a period of consolidation and reduced investment interest due to the (temporary) loss of momentum, crude oil has been struggled to unite short term challenges with medium term opportunities. 

The current rangebound behavior has been triggered by a market torn between focusing on the prospect for stronger growth and increased vaccine-led mobility driving higher demand and the impact of continued virus flare-ups, and rising US shale oil production just as OPEC+ prepares to add supply over the coming months. Adding to this the potential for rising production from quota exempt OPEC countries such as Libya and not least Iran as nuclear negotiations have resumed in Vienna. On top of these, concerns that China may tighten liquidity conditions and growth in order to combat rising inflation.

So far, however there are no signs of a let up in Chinese demand for key commodities after its trade surplus for March ended up much lower than expected. One of the main reasons being a continued strong appetite for key raw materials from crude oil, copper, iron ore and coal. During the month China imported record levels of copper concentrates, nearly 50 million tons or 11.7m b/d of crude oil, the highest monthly figure since last July, and more than 100 million tons of iron ore.

Before Easter OPEC+ announced plans to increased production further over the coming three months in order to meet an expected pickup in demand during the summer peak period. According to recent Oil Market Reports, both the IEA and OPEC expect the 2021 call on OPEC to reach 27.3 million barrels/day in 2021, some 2 million barrels/day above the 25.3 million barrels/day they produced in March.

One of the questions remain, how much of that increase will be provided by countries not restricted by quotas. During the past twelve months the OPEC 10 group with quotas have cut production by 4.7 million barrels/day while the three with no quotas, led first by Libya and now Iran, have lifted production by 1.1 million barrels/day.

The mentioned loss of momentum during the past month has triggered a 107k lots or 14.5% reduction in WTI and Brent combined net long to 630k lots or 630 million barrels, the smallest position held by money managers since January. Crude oil bulls however will take some comfort from the fact the reductions so far has primarily been driven by long liquidation while the appetite for short selling remains low.

Overall we see crude oil remains rangebound for a while longer with $60 and $65.5 being the outer boundaries in Brent crude oil. While the short-term outlook remains a bit challenging the prospect for rising demand towards the end of the quarter and into the second half, combined with OPEC+ flexibility should eventually help steer the price back towards the March high, but probably not much beyond.

Source: Saxo Group

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 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 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/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)

Due to coronavirus controls, we are not able to meet with clients in our reception at present, unless by appointment in exceptional circumstances. We remain at your service on the phone and email details below. Thank you for your understanding.

Please expect very long waiting times on the line when calling us, we advise you to send us an email instead.

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. 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

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.