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 / 31 January 2018 at 15:16 GMT

Crude oil trading lower ahead of weekly US stock report – #SaxoStrats

Head of Commodity Strategy / Saxo Bank
  • Focus on rising US output and potential first stock increase since November
  •  EIA to release its 'Weekly Petroleum Status Report' at 15:30 GMT
  • API yesterday reported its second consecutive rise in crude oil stocks
 US output has surged in recent weeks, reflecting price gains. Pic: Shutterstock
By Ole Hansen

Crude oil is trading lower for a third day after being hit by profit taking amid weaker stock markets and a focus on rising US production and the potential first stock increase since November. A 50% rally since last July has also raised questions about the sustainability of current demand growth expectations.

The EIA will release its 'Weekly Petroleum Status Report' at 15:30 GMT. Following a second consecutive rise in crude oil stocks being reported by the privately funded American Petroleum Institute, surveys point towards the first official rise since November. 

EIA survey and recent results
The seasonal slowdown in refinery demand has so far been offset by a rise in crude oil exports and reduced imports from Canada. Today's number, however, could signal the beginning of the stock building season which normally tends to last until April. This process may be speeded up by the the recent contraction in WTI's discount to Brent which may reduce export. Gasoline stocks are expected to continue their seasonal climb while distillate stocks will be negatively impacted by the surge in demand for heating. 

EIA charts
US crude oil production, according to weekly estimates, is now just 122,000 b/d below the headline-grabbing 10 million b/d mark. Following strong increases in recent weeks, that target is now within reach. 

US crude oil production
In my weekly update on speculative positioning I mentioned how hedge funds had accumulated a record net-long position in WTI and Brent crude of 1.1 million lots (1.1 billion barrels). Funds have benefited from the combination of a sustained rally and only small corrections along the way. 

The call for a crude oil correction has so far been left unheard despite the increased risk of such a one-sided position. The fact, however, remains that funds will continue to buy into strength until the music stops. 

Speculative positioning in Crude oil

The correction seen these past couple of days after WTI and Brent both found resistance after recovering half of what was lost during the 2014 to 2016 selloff has so far not been deep enough to rattle the bulls. For that to happen I believe WTI needs to break below $62.60/b and Brent below $67.30/b. Overall we maintain the view of short-term risk being skewed to the downside, primarily based on the expectation that the newsflow could turn less price friendly over the coming weeks due to the reasons mentioned above.

WTI crude oil, first month cont.
 Source: Saxo Bank

At a breakfast briefing to journalists in London on Tuesday I was interviewed Bloomberg to its daily brief on oil. Please click here to access.

I will post updates and charts below once the EIA report is released.

– Edited by Clare MacCarthy


Ole Hansen is head of commodity strategy at Saxo Bank

Ole Hansen Ole Hansen
Crude oil stocks jumped 6.8m barrels last week while both gasoline and distillates were lower. Production rose by 41k b/d to 9.92m b/d. Refinery demand slumped by more than expected while a rise in imports were offset by an equal rise in exports.
Ole Hansen Ole Hansen
Market Predator Market Predator
Hello Ole. One lesson from Dr. VIX (Mr. Russell Rhodes from Option Lab). Crude Oil seem to be pretty calm so far.
Ole Hansen Ole Hansen
Absolutely... We have yet to see levels that could trigger long liquidation
matsuri matsuri
Saudis will struggle to keep oil price high up to Saudi Aramco offering, later they will start to regain the market share, plus Russians want to put new projects going as they want to increase production so in the second half of the year there will be slump in oil prices.


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