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John J Hardy
Saxo Bank’s head of FX strategy John Hardy takes a closer look at trends and moves in today’s forex charts, including EURUSD, USDJPY, AUDUSD, and EURSEK.
Article / 11 May 2017 at 9:27 GMT

Bullish EIA report has bears running for cover — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
  • EIA inventories report sparks crude oil rally
  • Second weekly drop in Opec imports seen
  • US crude production up 864,000 b/d since October

Crude oil
Crude oil is back above key support in the wake of Wednesday's EIA report.
Photo: Shutterstock

By Ole Hansen

Crude oil is trading back above key levels following the latest weekly US inventory report. The market has increasingly been looking for data to support a recovery fuelled by  more than verbal intervention from producers. 

That is exactly what we got yesterday as the report showed falling stocks of oil and fuel combined with lower imports.

It is still to early to call an end to the latest selloff but with a heavy build-up in speculative selling during the past few weeks further gains could become self-feeding as sold positions are covered. 

A bigger than expected drop in oil and fuel stocks received the initial bullish attention. Adding to the positive tone was the reduction in imports, which fell back to their long-term average. This was primarily driven by a second weekly drop in imports from major Opec producers which was taken as a sign of the current Opec production cuts beginning to impact exports. 

EIA data























US crude oil production has risen by 864,000 barrels/day since last October and last week it rose for a 14th consecutive week. While this is staggering, we are seeing signs of growth slowing with the data showing an average weekly rise of 33,000 b/d during the first quarter slowing to 23,000 b/d so far during the second.

This latest move has undoubtedly been driven by short-covering from funds that sold into the recent weakness, not least when the price broke below $47 and $50/barrel on WTI and Brent crude respectively last week. 

In the week to May 2 – before the May 4 rout – the gross-short hit the highest and the gross-long the lowest levels seen since just before the late November surge when Opec announced the deal to cut production.

Speculative positioning in Crude oil
One swallow does not a summer make, and more data are needed to support the market once the initial short-covering phase has passed. However the International Energy Agency's head of Oil Industry and Markets sees demand significantly exceeding production should Opec extends its cuts into the second half. 

WTI crude oil is trading back above $47/b, the level that triggered a high volume selloff last week. The rally has continued today with the market now potentially targeting the halfway mark of the April to May selloff at $48.75/b. 

At this stage the best potential bulls can hope for is probably to see the market stabilise while we await the outcome of the May 25 Opec meeting in Vienna. 

WTI crude oil, first month cont.

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Source: Saxo Bank

— Edited by Michael McKenna

Ole Hansen is head of commodity strategy at Saxo Bank

2y
Ole Hansen Ole Hansen
Opec's monthly oil market report just out: http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR%20May%202017.pdf
Non-Opec production is expected to rise by 950k b/d in this year which is four times higher than in November.
Demand growth for 2017 is maintained at an unchanged 1.27m b/d
Raises 2017 U.S. supply growth outlook by 282k b/d, to 820k b/d y/y
OECD Inventories still 276m bbl above five-year avg
OPEC-13 crude output -18.2k b/d m/m in April to 31.732m b/d, as 7 out of 13 members reduced output: OPEC secondary sources data
2y
Vladimir M Vladimir M
USAC gasoline inventories rose 2.56 million barrels to reach a total of 69.77 million barrels. The prior 3-year average for USAC inventories in the first week of May is 61.8 million barrels, about 13% below current levels.USAC refining statistics were also bearish

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