Buying fatigue hits crude oil

Ole Hansen

Head of Commodity Strategy
Ole Hansen joined Saxo Bank in 2008 and has been Head of Commodity Strategy since 2010. He focuses on delivering strategies and analyses of the global commodity markets defined by fundamentals, market sentiment and technical developments.

Brent crude oil has been struggling to break above $80/b despite a deteriorating outlook for production in Venezuela and the not yet quantifiable impact of US sanctions on Iran.

Reasons:

A ten-dollar rally since early April could indicate that tighter supply may begin to be priced in.

Opec and Russia may consider easing their production cuts before, or no later than at, their joint meeting on June 23: Argus Media yesterday reported that Saudi Arabia, Russia and the president of Opec are likely to meet this week to discuss a controlled relaxation of the over-compliance caused by the continued slump in Venezuelan production.

The US may struggle to achieve the desired impact on Iranian oil exports given the lack of support from other members of the 2015 nuclear deal

During the past week, instead of triggering additional momentum buying above $80/b, sellers emerged to knock it straight back below. Geopolitical risks are likely to keep a relatively solid floor under the market. But the recent price behaviour could indicate the market is getting ready to consolidate with $77.50/b being the first level of support.

Watch what people do, not what they say: Hedge funds have been net-sellers of crude oil for the past four weeks with the net-long dropping to a five-month low:

Focus today is on the weekly EIA report at 14:30 GMT. Crude stocks are surveyed to have dropped by 2m barrels last week. Gasoline, meanwhile, trades lower as a record fund long reacted negatively to the surprise counter-seasonal rise  reported by the API last night.

Disclaimer

Saxo Capital Markets Pte. Ltd. (“SCM SG”) may distribute information/research produced within the Saxo Bank Group pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, SCM SG accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact SCM SG at +65 6303 7800 for matters arising from, or in connection with the information distributed. All legal documentation and disclaimers can be found at https://www.home.saxo/en-sg/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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. 

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)