Head of Commodity Strategy
Summary: Crude oil remains stuck with the relief rally in recent days not removing the fear that recession risks could still send the market lower again.
Crude oil remains stuck with the relief rally in recent days not removing the fear that recession risks could still send the market lower again. Expectations for a weekly draw in crude and product stocks together with a rebound in equities and Treasury yields ticking higher after retreating yesterday are currently the main sources of support. The US Energy Information Administration will publish its ‘Weekly Petroleum Status Report’ at 14:30 CEST with expectations and latest data shown below.
Apart from the expected draw in oil and product stocks the market will also be paying some attention to the continued draw at Cushing in Oklahoma, the landlocked delivery hub for WTI crude oil futures. Improved pipeline capacity from the Permian Basin to refineries and export terminals on the U.S. Gulf Coast have eased the pressure on Cushing in recent weeks. These developments have resulted in crude oil flowing away from Cushing since June thereby returning the curve structure to a supporting backwardation.
Brent crude oil meanwhile has struggled relative to WTI given it is the preferred contract by macro funds looking for a hedge against recession. The prompt spread between the two contracts have because of these developments dropped to $4/b from above $10/b back in June.
We maintain a neutral outlook for oil given the strength of the opposing forces currently at play. Following today's stock report the focus will turn to Chairman Jerome Powell's address at Jackson Hole in Wyoming on Friday. The market will pay close attention to his views on US economy following the latest attacks on him and the central bank from Trump.
From a chart perspective both Brent and WTI remain in a downtrend. However, while the early August sell-off, led by the collapse in bond yields, took Brent below $60/b, WTI managed once again to find support above $50/b thereby establishing a yet to be confirmed supportive double bottom. In terms of technical levels the market will be focusing on Brent's behavior around $61.5/b, the August high. WTI meanwhile is currently challenging resistance at $56.75/b, the 200-day moving average as well as trendline from the July peak.
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.
