COMMODITIES 3 minutes to read

Sub-$75/b Brent nearing key support

Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil continues to trade lower even as sentiment in equities and other asset classes rebounds. At issue are large leaps forward in both US and Opec production.


Crude oil continues to trade lower despite the improved sentiment seen across other markets where stocks have recovered and the dollar has weakened.The USD softness is due to renewed Brexit hopes lifting sterling while USDCNY has retraced from the important 7.00 level after China’s leadership signaled the roll-out of further stimulus measures as economic data continue to disappoint.

WTI crude is testing $65/barrel while Brent has broken below the important $75/b level to challenge the 200-day moving average at $74/b. The market has reacted negatively to yesterday's news from the Energy Information Administration that US production in August jumped by 3.8% to reach a fresh record of 11.346 million barrels/day.

US oil production has now risen by an incredible 2.1 million barrels/day year-on-year, in the process surpassing Russia which produced a post-Soviet high of 11.2 million b/d in August. 

If that was not enough, Reuters then released its monthly Opec production survey which showed the group's output rising to the highest level seen since 2016 despite Iran sanctions. Also on the Iran front, we now see reports discussing US waivers potentially being granted to India and South Korea, thereby reducing sanctions' impact on Iran's ability to produce and export crude oil.
Enlarge
These developments have further reduced the potential impact of US sanctions against Iran when they come into force next week. WTI crude is now looking for support ahead of $64/b, with a break below carrying the risk of an even deeper correction than the one already witnessed. Brent crude oil, meanwhile, has dropped below $75/b with the next level of support being the 200-day moving average at $74/b.
Enlarge
Source: Saxo Bank
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. This content is not intended to and does not change or expand on the execution-only service. 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)