Head of Commodity Strategy
The main driver of these supply concerns remains the US sanctions against Iran which have already started to have an impact on Tehran's ability to sell its crude abroad. This is forcing the return of floating storage with Bloomberg reporting that at least five Very Large Crude Carriers (VLCC) have anchored off the Iranian coast in the past couple of weeks.
Together with Russia, Opec producers with spare capacity are unlikely to make up the shortfall from Iran. This development is driven by the current divergence in the shape of the WTI and Brent crude oil curves. While Brent has seen the front end of the curve flip from contango to backwardation (from loose to tight supply) during the past month, WTI has only managed a general shift higher as the prompt price rallied.
This development has helped trigger a jump in Brent’s premium over WTI to $10/b.
Also driving the change has been the ongoing problems with bottlenecks within the US – something that has become increasingly painful for producers from the Permian shale region in Texas. Lack of pipeline takeaway capacity has triggered a deep discount between Permian oil and WTI crude oil. As a result, we are beginning to see production growth slowing, something that led the Energy Information Administration in its latest Short Term Energy Outlook to cut US production growth both in 2018 and 2019.
Apart from the EIA’s weekly update on stocks, production, and trade at 14:30 GMT, the market is also keeping a close eye on Hurricane Florence which is expected to slam into North Carolina this weekend. Potentially at risk is a disruption of the Caledonian pipeline, the main artery transporting fuel from the Gulf of Mexico refineries to the metropolitan East Coast. Any disruption could trigger a jump in gasoline and diesel futures given the risk to supplies into New York Harbour, the physical delivery point for RBOB and ULSD futures.
Later today, as mentioned, the attention turns to the Weekly Petroleum Status Report from the EIA. Last night the American petroleum Institute reported a price-supportive 8.6 million barrel draw in crude stocks, somewhat higher than a Bloomberg survey pointing to a two million barrel drop.
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.
