Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Crude oil responds to bullish EIA stock report
Ole Hansen
Head of Commodity Strategy
Summary: Crude oil markets are placing far more weight on supply tightening than they are to slowdown-related demand fears.
Crude oil continues to grind higher in response to news flows, which remain overwhelmingly supportive. Worries about growth and future demand for crude oil remain just worries at this stage with the market instead responding, albeit at a relatively slow pace, to the continued tightening on the supply side in response to ongoing production cuts from the Opec+ group of producers as well as another slump from a blacked-out Venezuela.
The Weekly Petroleum Status Report released one hour earlier (in Europe) due to beginning of US summer time added another layer of support after crude oil and gasoline stocks both dropped by more than expected. In addition, crude oil production from the Lower 48 states – primarily shale – was adjusted lower by 100,000 barrels/day. Some of the drop in US oil stocks was probably due to a timing effect following last week’s massive 7 million barrel increase. Overall, however, it is still positive given the current lull in refinery demand as the maintenance season draws to a close.
The Weekly Petroleum Status Report released one hour earlier (in Europe) due to beginning of US summer time added another layer of support after crude oil and gasoline stocks both dropped by more than expected. In addition, crude oil production from the Lower 48 states – primarily shale – was adjusted lower by 100,000 barrels/day. Some of the drop in US oil stocks was probably due to a timing effect following last week’s massive 7 million barrel increase. Overall, however, it is still positive given the current lull in refinery demand as the maintenance season draws to a close.
The EIA report shows no change in the net-import of crude oil with a drop in both imports and exports leaving it unchanged on the week. Imports from key producers were mixed with the much-discussed import from Saudi Arabia rising 250,000 barrels/day to return to the five-year average. Shipments from Venezuela rose by 29,000 b/d but at a dismal 112,000 b/d it is currently trailing the five-year average by 500,000 b/d. Gasoline stocks stayed above the long-term average despite the bigger than expected drop.
The EIA report has sent WTI crude oil up by a buck to the highest level seen in four months. The next major milestone will be $59.63/b, which represents a 50% retracement of the October-December sell-off ahead of the psychologically important $60/b level.
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