Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Crude prices seek stability ahead of key support and US elections
Ole Hansen
Head of Commodity Strategy
Key points
- Crude oil futures trade close to unchanged on the month following an eventful period that saw brief moves below USD 70 and above USD 80.
- For now, the geopolitical risk premium which has ebbed and flowed all year has almost evaporated
- Downside risks remain limited ahead of a US election that may trigger fresh US sanctions on Iran and Venezuela
- Hedge funds have adopted a "sell-into-rallies" strategy, and, combined with weak positioning, a change in the technical or fundamental outlook could trigger an upside reaction
Crude oil futures trade close to unchanged on the month following an eventful period that saw a brief slump below USD 70 being followed by an equally brief attempt to break above USD 80. This during a month that started and ended with a focus on sluggish demand and the risk of increased OPEC+ production, and in between topped up with temporary geopolitical risks and China stimulus spikes.
The geopolitical risk premium which has ebbed and flowed all year almost evaporated following Israel’s weekend strike on Iran, largely due to the strikes avoiding critical energy infrastructure. A move which eased concerns of an extended tit-for-tat conflict helped send crude prices to their biggest one day slump since 2022 while lowering the risk of an already low probability of a supply disruption from the Middle East. However, the risk of another flare-up has not gone away after Iran said it would respond to Israel’s strike in an appropriate fashion, without being more specific.
Instead the market attention has returned toward expectations for deteriorating global oil balances in 2025, when supply is expected to exceed demand, not least driven by an expected production increase from OPEC+ at a time of additional production growth from countries including the U.S., Canada, Guyana, Brazil, as well as Norway. In addition, the move towards renewables continue to gather momentum, thereby slowing and eventually reversing annual demand growth estimates.
However, ahead of the US election and a result that potentially could see fresh sanctions limiting output from Iran and Venezuela, the downside risk in our opinion remains limited. Not least considering the risk of another geopolitical risk premium emerging, OPEC+ delaying once again its planned production increase into 2025 while stepping up their focus on reigning in production from overproducing members. If none of these supporting measures emerge we may see the USD 60’s becoming the new USD 70’s in 2025, thereby challenging high-cost producers, especially in the U.S.
Hedge funds have for now adopted a sell into rallies strategi in crude oil, and combined with an already weak position in the fuel products, especially distillates, amid global demand worries and excess refinery capacity, the directional risk from a positioning perspective seems increasingly skewed to the upside on any supportive change in the technical or fundamental outlook.
Recent commodity articles:
30 Oct 2024: Will the US election result spark a gold correction?
29 Oct 2024: Podcast: Electrification's surge impact on commodities and equities
28 Oct 2024: COT: Crude length cut; silver and platinum see strong demand
25 Oct 2024: Commodity weekly: Market jitters on the rise ahead of U.S. elections
23 Oct 2024: Crude prices stalled by two-sided market risks
22 Oct 2024: Gold and silver's remarkable run in four charts
22 Oct 2024: Podcast: The Trump trade enters the metal market
21 Oct 2024: COT: Dollar shorts squeezed; Shift in commodity exposure from energy to metals
18 Oct 2024: Commodity weekly: Gold's record-breaking run continues
17 Oct 2024: Copper prices decline amid doubts about China stimulus impact
16 Oct 2024: How high can gold and silver rally?
8 Oct 2024: Podcast: Navigating market shifts: Fed rate cuts, commodities and rising food prices
8 Oct 2024: Video: These commodities might be impacted by the US election
7 Oct 2024: Crude oil surge caps strong four-week rally for commodities
7 Oct 2024: COT: Broad buying momentum persists, led by Brent, copper and grains
2 Oct 2024: Q3 2024 Commodity Outlook: Gold and silver continue to shine bright
30 Sept 2024: COT: Fed and PBOC trigger largest weeklyl surge in commodities demand in a decade
27 Sept 2024: Commodity weekly: Industrial metals gain strength during a week of crude weakness
26 Sept 2024: Crude prices drop again as Saudi and Libya supply concerns grow
24 Sept 2024: Fed and PBOC add momentum to commodities market rebound
23 Sept 2024: COT: Dollar short reduced; Investment metals see strong demand ahead of FOMC
20 Sept 2024: Commodity weekly: Commodities boosted by bumper rate cut
20 Sept 2024 Video: Gold or silver, which metal will perform the best
17 Sept 2024: With gold reaching new heights, silver shows potential
16 Sept 2024: COT: Record short Brent and gas oil positions add upside risks to energy
11 Sept 2024: Crude slumps amid technical selling and recession fears
10 Sept 2024: US Election: will gold win in all scenarios
9 Sept 2024: COT: Crude long cut to 12-year low; Dollar short more than doubling
5 Sept 2024: Can gold overcome the 'September curse'?
4 Sept 2024: Wheat rises on European crop worries
3 Sept 2024: Chinese economic woes drag down crude oil and copper
2 Sept 2024: COT: Commodities see broad demand as the USD slumps to a net short
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