Video

#SaxoStrats
Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 04 October 2017 at 11:37 GMT

Crude oil bulls fret another bearish EIA report — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
  • Crude oil correction continues ahead of today's data from the EIA
  • 'Still too early' for oil market to look for sustained rally above $60/b
  • Rising backwardation in Brent crude has started to fade

EIA report
The short-term risk for crude oil remains to the downside. Photo: Shutterstock

By Ole Hansen

The correction in crude oil and products that began a week ago continues ahead of today's Weekly Petroleum Status Report from the US Energy Information Administration. 

A surprisingly bearish report last week helped change what up until then had become increasingly bullish sentiment. The month-long rally to that point had led to a surge in speculative buying, resulting in record net-longs being established in Brent crude, ULSD (Ticker: HO), and gas oil (Ticker: FP). 

Fundamentals have improved during the past quarter with strong demand growth being met by steady supply following Opec and Russian supply cuts and temporary disruptions following Hurricane Harvey. But the market is also realising that it is still too early to start speculating on a sustained rally beyond $60/b. 

Long positions need adjusting and that process is currently ongoing. Speculative flows tend to overreact in both directions and on that basis the short-term risk remains skewed to the downside, especially if the EIA report delivers another bearish surprise at 1430 GMT. 

COT on Brent and products











After failing to break $60/b, Brent crude is once looking for support. We focus on the uptrend from the June low which also ties in with the 38.2% Fibonacci retracement of that rally. 

Support at that level needs to be established in order to avoid accelerated long liquidation towards $50/b. 

 

Brent Crude oil, first month cont.

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank 

The weakening fundamentals are most visible when looking at various spreads. The rising backwardation seen in Brent crude oil recently has started to fade... and with that the "free" return a passive investor receives from being long the market. 

Refinery spreads, especially the one between RBOB gasoline and WTI, have fallen back below pre-Harvey levels to an eight-month low. The tightest market has emerged in the middle distillate section represented by the ultra-low sulfur diesel future (ULSD), but even that spread has started to contract. 

The spike in US exports last week has helped reduce WTI's discount to Brent as it reduces the tightness seen recently in the North Atlantic basin which primarily represents production from the North Sea, Libya, and Nigeria. 

Crude oil spreads





















The price weakness today was triggered by the weekly stock report from the American Petroleum Institute last night. For a second week in a row, API reported a bigger than expected drop in crude and rise in gasoline inventories. 

Lower crude stocks, probably due to exports and strong refinery demand, should be positive. But with stocks at the Cushing delivery hub for WTI crude oil rising by 2 million barrels according to the API, the impact has not been felt. 

Instead a big rise in gasoline stocks could further reduce refinery margins which ultimately could lead to lower demand for crude oil. 

EIA survey and recent results
In today's report we will be focusing on crude oil and gasoline inventories, as well as production and whether the record pace of exports can be maintained.  

EIA charts























Updates to follow in the comment section following the release.  

— Edited by Michael McKenna

Ole Hansen is head of commodity strategy at Saxo Bank

2y
Ole Hansen Ole Hansen
Oil and gasoline both higher following EIA report which showed a 6M barrel drop in crude stocks and a 1.6M barrel increase in gasoline. Distillate stocks declined by 2.65M barrels. The drop in crude stocks driven by another surge in exports of 493k bpd while imports were down 213k bpd
2y
Ole Hansen Ole Hansen
Surging US crude oil export once again the big outlier in this weeks report. With additional barrels being moved into the global market it should further reduce WTI's discount to Brent
2y
JJb JJb
I guess I’m out of these dodgy price reactions on Wednesday. Anything is a reason to sell. I guess US also makes money by exporting some of its oil but some don’t like it.
About opec: I think they will keep the cuts until they can’t do it anymore, perhaps 2020.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com 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 Tradingfloor.com 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 Tradingfloor.com 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 Tradingfloor.com or as a result of the use of the Tradingfloor.com. 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. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com 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 ourtrading 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 Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail