Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Head of Commodity Strategy
Key points
Crude oil continues to be supported by geopolitical uncertainty amid Ukraine drone attacks on Russian oil infrastructure, extended OPEC+ production cuts including Russia's recent pledge to make extra cuts and signs of gasoline consumption strength. However, following the mid-March break higher the market has turned its attention to consolidation, leaving the market short-term exposed to long liquidation from technical-driven funds that bought the break above USD 80 in WTI and USD 85 in Brent.
Current headwinds apart from dollar strength and the current overhang of recently established long positions were last night's crude and fuel stock report from the American Petroleum Institute which showed a bumper 9.3 million barrel increase in crude stocks being only partly offset by lower gasoline stocks (see inserted table below).
While a build in crude and a drop in gasoline stocks are in line with the seasonal behaviour, the strength of the changes may still impact prices. I will post the results of the EIA report on X at @ole_s_hansen once published at 13:30 GMT.
Money managers, like hedge funds and CTAs tend to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Since hitting an 11-year low last December at 170 million barrels, they have steadily been increasing their exposure in the WTI and Brent crude oil futures contracts, culminating in the week to March 19 when the net buying exceeded 100 million barrels (105k contracts), lifting the net long to a five-month high at 509 million barrels.
Being followers of trends and momentum these traders will buy into strength – and sell into weakness - and during the mentioned reporting week both WTI and Brent broke higher, thereby triggering the relatively aggressive buying response. Despite the multiple tailwinds mentioned above currently supporting the market, this behaviour highlights a market that could still run into technical selling should prices revert back below USD 80 in WTI and USD 85 in Brent.
Commodity articles:
26 Mch 2024: Gold's behaviour points to sustained demand
20 Mch 2024: Attacks on Russian refineries lift risk premium and crude prices
19 Mch 2024: How to add copper exposure to your portfolio
15 Mch 2024: Commodity weekly: Green shoots seen across key sectors
13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: Investing with options - Gold optionality
6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
29 Feb 2024: Podcast: Why speculative interest is important to understand
28 Feb 2024: Oil price stuck in neutral despite underlying strength
27 Feb 2024: Resilient gold market defies lower rate cut predictions
22 Feb 2024: Copper short squeeze fades ahead of key resistance
21 Feb 2024: Gold's resilience despite recent futures and ETF selling
20 Feb 2024: WTI crude eyes resistance amid improved signals
16 Feb 2024: Commodity weekly: Grains tumble; Industrial metals eye China boost
15 Feb 2024: US rate cut delay drives gold below $2000
13 Feb 2024: Video: What is driving Cocoa's sweet price
9 Feb 2024: Commodity weekly: Refined product strength lifts crude
9 Feb 2024: Podcast: Year of the metals
7 Feb 2024: Crude oil supported by tightening fuel outlook
6 Feb 2024: Gold and silver turn defensive on reduced Fed rate-cut optimism
2 Feb 2024: Commodity weekly: Tight supply adds fuel to uranium and cocoa rally
1 Feb 2024: Commodities: January performance and ETF flows
Previous "Commitment of Traders" articles
25 Mch 2024: COT: Hedge funds zoom in on crude, copper and silver
18 Mch 2024: COT: Hedge funds buying expands from precious metals to copper and grains
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
26 Feb 2024: COT: Record corn short, cocoa surge no longer supported by speculators
19 Feb 2024: COT: US inflation surprise drives broad selling of metals
5 Feb 2024:COT: Speculators chase false crude break; grain short extends further