Head of Commodity Strategy
Key points
Crude oil prices continue to trade nervously with all eyes on the Middle East and what may happen next after Israeli military officials, despite EU and US calls for restraint, said their country had no choice but to respond to Tehran’s weekend strike. The tit-for-tat standoff between these two countries being just one of several developments currently supporting prices. While the Israel-Iran tensions add a non-quantifiable risk premium as supply has yet to be disrupted, energy prices are also being supported by a tight fuel product market driven by Russian refinery disruptions following recent Ukraine drone attacks, a firmer demand outlook for energy amid an improvement in manufacturing data in the US, Europe and China, and not least continued production restraint from OPEC+ producers.
Overall, developments that have supported year-to-date price increases of more than 20% across the major crude oil and fuel product futures, thereby feeding a continued buildup in long positions held by hedge funds. The crude oil net long in WTI and Brent reached a six-month high last week, not least driven by Brent, the contract most exposed to international developments, which has seen the net long held by money managers reach a 2-1/2-year high above 300 million barrels, a tripling since early December, just before Houthi attacks on ships in the Red Sea helped raise the geopolitical temperature. With fuel products also in demand, the total crude and fuel net long position has reached a two-year high at 728,000 contracts.
With oil demand in 2024 expected to rise by around 1.5 million barrels a day - note the IEA expects 1.2 million barrels per day while OPEC analysts say 2.2 million barrels per day – the prospect for tightening market conditions into the second half will increase the focus on OPEC+ and their June meeting, when the group will decide whether to maintain production restraint, currently around 2 million barrels a day, or slowly begin to add barrels back into the market.
In the short-term the risk premium will continue to ebb and flow, with focus on Iran’s oil production, currently running at a five-year high around 3.25 million barrels a day after the Biden administration stopped enforcing the sanctions that was put in place during the Trump presidency, and not least the continued safe passage of crude oil through the Strait of Hormuz, the world's most important energy chokepoint. The risk of a disruption remains limited but in a worst-case scenario some of the short fall can be met by another release of oil from US Strategic Petroleum Reserves or key OPEC producers holding a significant amount of spare capacity, deciding to turn up the taps.
Brent crude oil has settled into a nervous trading range around USD 90, between USD 88.75 and USD 92, with news from Israel and Iran providing most of the intraday volatility.
Commodity articles:
12 April 2024: Gold and silver surge at odds with other market developments
10 April 2024: Record breaking gold highlights silver and platinum's potential
5 April 2024: Commodity market sees broad gains, enjoying best week in nine months
4 April 2024: What's next as gold reaches USD 2,300
3 April 2024: Q2 Outlook: Is the correction over?
3 April 2024: Cocoa: A 50% farmgate price boost a step in the right direction
27 Mar 2024: Crude oil maintains support amidst array of bullish signals
26 Mch 2024: Gold's behaviour points to sustained demand
20 Mch 2024: Attacks on Russian refineries lift risk premium and crude prices
19 Mch 2024: How to add copper exposure to your portfolio
15 Mch 2024: Commodity weekly: Green shoots seen across key sectors
13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: Investing with options - Gold optionality
6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
Previous "Commitment of Traders" articles
15 April 2024: COT: Hedge funds propel multiple commodities positions beyond one-year highs
8 April 2024: COT: Speculative interest in metals and energy gain momentum
2 Apr 2024: COT: Gold and crude longs maintained amid strong underlying support
25 Mch 2024: COT: Hedge funds zoom in on crude, copper and silver
18 Mch 2024: COT: Hedge funds buying expands from precious metals to copper and grains
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
2024: The wasted year
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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.
