COMMODITIES 5 minutes to read

Crude oil trades higher on stock drop and Iran

Ole Hansen

Head of Commodity Strategy

Summary:  WTI crude oil trades up by 2% ahead of the “Weekly Petroleum Status Report” from the US Energy Information Administration.


WTI crude oil trades up by 2% ahead of the “Weekly Petroleum Status Report” from the US Energy Information Administration at 14:30 GMT. Expectations for another price supportive drop in stocks was strengthened last night after the American Petroleum Institute reported a nationwide stockpile drop of 8.13 million barrels. Somewhat higher than the 2.9-million-barrel estimate found in a Bloomberg survey ahead of the EIA report. 

Also, today Federal Reserve Chairman Jerome Powell will begin his two-day testimony to Congress on the state of the US economy. The text will be released at 12:30 GMT and his remarks, given the current global rate debate, will be watched closely across all markets, including the energy sector.  
The April to June sell-off in crude oil was driven by a deteriorating outlook for global growth and with that demand for oil. In their latest ‘Short-Term Energy Outlook’ released yesterday, the EIA further reduced the 2019 outlook for global oil demand by 200k barrels/day to 1.1 million barrels/day. Monthly oil market reports from Opec on Thursday and the IEA on Friday will add some additional colour from these three most closely watched market forecasters. 
Source: Opec, IEA, EIA
The Opec+ group’s decision to extend production cuts for another nine months and the above-mentioned fourth consecutive weekly drop in US crude stocks are currently two key drivers of support. On top of that, the ongoing geopolitical tensions between the US and Iran continue to add a still unquantifiable level of support. These potential risks could lead to a supply slowdown, should shipments through the Strait of Hormuz be threatened.

Looking at the WTI chart below, we find the early July sell-off has been reversed with the price once taking aim at the key psychological level around $60/b. While geopolitical risks and lower US stocks may provide support the challenging economic outlook may still prevent the market from mounting a break at this time.
Source: Saxo Bank
Comments and charts related to the outcome of the EIA report will be posted on Twitter @ole_s_hansen.
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.