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 / 10 June 2015 at 12:37 GMT

Crude oil soars as focus switches from Opec to the US

Head of Commodity Strategy / Saxo Bank
  • WTI up 8% since Friday despite unchanged Opec production target
  • EIA sees decline in US shale output in July and a YoY fall for 2016
  • Opec says global oversupply will ease in coming quarters

By Ole Hansen

A few days is a long time in crude oil markets these days. On Friday, crude oil weakened following Opec's decision to maintain current production targets. Since then WTI crude oil has rallied by eight percent as the focus quickly has reverted back to price supportive developments in the US.  

Reports about a continued fall in shale oil production from the EIA and expectations that US inventories has fallen for a sixth consecutive week have both helped trigger a change in focus from an oversupplying Opec to falling production in the US.

US shale oil production and rigs
In its latest "Drilling Productivity Report"  the US Energy Information Administration (EIA) said it expected production from the major US shale oil regions to fall by 92,000 barrels in July – the lowest since January. For the first time they also forecast an actual drop in production for 2016, which would be the first in eight years. This, combined with a dollar that has struggled to resume its strength and the outlook for another drop in weekly inventories, has helped drive both Brent and WTI crude oil back towards the higher end of the ranges which have prevailed since April. 

Meanwhile, further price-supportive news came earlier today in the form of Opec's monthly market report which forecast unchanged global demand at 1.18m b/d and noted that "oversupply is likely to ease in coming quarters" because of a pick-up in demand and slower non-Opec supply growth.

The weekly inventory report due at 16:30 CET is expected to show another drop in inventories, the sixth in a row. During this time, the price response has all been favourable apart from last week when the market were preoccupied with Friday's upcoming Opec meeting.

US crude inventories

It seemed the world was running out of space to stash all that oil.  
Happily, Opec now tells us the glut will ease off.

Surveys have put the reduction at between 1.5 and 1.8 million barrels and this should leave the overall inventory level around 476 million barrels, which is still some 100 million barrels above the five-year average. 

For now the technical picture remain bullish and fundamentals such as the risk of increased – not lower – US production should the price move higher from here is not something that short-term traders would be that concerned about.

Oil hovering comfortably around $60. For now.
 Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more

– Edited by Clare MacCarthy


Ole Hansen is head of commodity strategy at Saxo Bank

ozy ozy
Hi Ole, what does it say to us those new data -6.812m inventory down and +0.905m production rise?


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