Article / 11 August 2016 at 8:45 GMT

From the Floor: Oil bulls halt, NZD soars then stumbles

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  • EIA stops oil bulls in their tracks with inventory increase news
  • Oil is back on the defensive – Hansen
  • Crude to settle into a range at somewhat lower levels – Hansen
  • RBNZ reluctant to cut the official cash rate too far – Liu
  • Corn and wheat under pressure ahead of WASDE
By Clare MacCarthy

Markets are still moving this Thursday despite Europe's vacation mood and an absence of tier-one economic releases. At their regular morning conference call, Saxo Bank's strategy team dissects development's including a surprise rise in US oil inventories, a somewhat unsettling lower-than-expected New Zealand interest rate cut and the state of the corn and wheat markets ahead of a key assessment on Friday.

Hovering at a lower altitude:
Source: Bloomberg, Saxo Bank

First up, crude oil, where the August bull market has been stopped in its tracks by last night's US Energy Information Agency report of a weekly 1.05 million barrel advance in stockpiles, a substantially higher figure than the 1.5m/b contraction that had been foreseen.

"Oil is back on the defensive," says Ole Hansen, Saxo's head of commodity strategy. The fact that Saudi Arabia production has hit a new record and the fact that Iran has increased production to its highest since 2008 is imposing additional pressure on the black stuff.

Ominously (especially for cash-strapped producers) both Opec and the EIA agree that the rebalancing of world oil markets is being delayed by the overhang of supply. Against that background, a significant price recovery is off the cards and in the immediate term Hansen expects oil to "settle into a range at somewhat lower levels".

Source: Saxo Bank

Meanwhile, the Reserve Bank of New Zealand did deliver the anticipated rate cut but some participants were disappointed with the 25 basis points reduction that brought the main rate to an even 2%.

Edmund Liu of Saxo's Singapore trading desk reports that by late Wednesday night the implied probability for a half a percentage point cut had risen from 23% to around 59%.This not-insignificant cohort of investors had priced in a cut of 50 basis points and NZDUSD responded to the policy announcement with a rally of almost 2%. However, this vigorous move was nothing more than a temporary knee-jerk reaction and the kiwi spent the remainder of the Asian session in backtrack mode.

While the RBNZ has an official dovish outlook Liu says the central bank is reluctant to cut the official cash rate too far for fear of further inflaming the housing market .

Finally, activity in grain markets is slowing ahead of the US Department of Agriculture’s monthly world agricultural supply and demand estimates on Friday. Both corn and wheat remain stuck near 9-year lows, Hansen reports, with hedge funds holding a record short in wheat having been heavy sellers of corn for the past seven weeks.

 It's harvest time but the outlook isn't sunny. Pic: iStock

Clare MacCarthy is deputy editor at

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Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

Bill_K Bill_K
Thank you for this highly informative piece Clare. Temporary disruptions such as the Canadian wildfire have been supporting the oil price but these disruptions are just that - temporary. Venezuela and others within OPEC have continuously tried to push for a production freeze but they do not have the leverage. As long as no production freeze agreement can be made between Saudi Arabia and Russia, it seems there is little hope to stabilize the oil price. Saudi Arabia being very well aware of their situation created a 2 trillion dollar investment fund to shift themselves away from the post-oil era.


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