WTI tests $60/b as funds step up buying on dovish FOMC

WTI tests $60/b as funds step up buying on dovish FOMC

Commodities 5 minutes to read

Ole Hansen

Head of Commodity Strategy

Summary: The latest EIA report showed a rise in stocks, sending prices a tick below the $60/b level in the immediate wake of the release.

For the fifth day out of the last six, WTI crude oil (CLK9) was once again challenging the psychological important $60/barrel level ahead of the Weekly Petroleum Status Report from the US Energy Information Administration at 14:30 GMT.

Production cuts from the Opec+ group of producers have been the main reason for the dramatic recovery since the 38% price slump during the final quarter last year. In fact the recovery has been so strong and swift that WTI is currently heading towards its biggest quarterly gain – currently 32% – since Q2 2009 when the recovery from the global financial crisis saw it jump by more than 40%.

This week, the market seems to have caught a fresh bid from macro-focused funds who, despite the recessionary signals from an inverted yield curve, have concluded that the dovish tilt from the Federal Open Market Committee have reduced global growth risks. With that, the risk to future demand growth has been reduced and these developments have supported a bigger exposure in crude oil.

The pull from funds primarily speculating at the front of the curve has supported a jump in the Brent crude oil prompt spread to $0.6/b backwardation while the contango in WTI crude oil has been reduced to -$0.16/b.

Supply side worries related to news that Russia have put boots on the ground in Venezuela and a continued drop in the US rig count have also provided the support which overall makes the energy space a very lonely place for those holding a negative view on the market.

The biggest short-term risk to the oil market is likely to be driven by renewed stock market weakness as it would help erode the recent pick up in risk appetite, particularly considering that the fresh addition of 124 million barrels during the past month up until March 19 has brought the total net-long to 505 million barrels.

WTI crude oil is currently trading in the middle of a $57.70/b to $61.6/b range. The weekly inventory report highlighted below initially sent the price of both oil and products lower by 0.5%.

The Weekly Supply and Demand Estimates report from the Energy Information Administration confirmed the first weekly return to the seasonal trend of rising crude oil stocks in three weeks. The 2.8 million barrels increased was supported by a small 114k barrel/day increase in imports as well as a counter-seasonal drop in refinery demand of 367k b/d. The latter was primarily due to a spate of fires and other upsets which hit Gulf Coast refineries during the week in question. Imports from Venezuela, meanwhile, were a round zero for the second week in a row.

The charts below show this week's EIA data:

Quarterly Outlook Q3 2023

AI: The good, the bad, and the bubble

AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.

Steen Jakobsen,
Chief Investment Officer
Read article
Equities: The AI fever pushes market to new extremes
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.

Peter Garnry,
Head of Equity Strategy
Read article
Commodities: bottoming out?
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.

Ole S. Hansen,
Head of Commodity Strategy
Read article
FX: The USD smile and the JPY dam break
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.

John J. Hardy,
Head of FX Strategy
Read article
Fixed income: To hike or not to hike, that is the question
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist

Read article
Is AI the new crypto?
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Read article
Artificial Intelligence: a promising gamechanger for the portfolio?
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.

Hans Oudshoorn,
Trainer Academy
Read article
Japan’s riposte to aging and productivity headwinds: robots with generative AI
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.

Charu Chanana,
Market Strategist
Read article
China faces challenges from generative AI amidst the fragmentation game
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.

Redmond Wong,
Market Strategist
Read article