Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
You can access both of our platforms from a single Saxo account.
Crude oil: What’s next after China inspired jump?
Ole Hansen
Head of Commodity Strategy
Summary: Crude oil trades near a three-month high around $120 per barrel following China's latest, and so far, succesful attempt to lift Covid-19 lockdowns in major cities. The near-term outlook points to higher prices with tight supply caused by sanctions, OPEC's inability to lift production, and oil majors showing limited appetite for new projects. Developments that eventually will balance the market as higher prices kills demand while adding fuel to recessionary flames across the world, perhaps even in the US.
Crude oil trades near a three-month high with the front month contracts of WTI and Brent both hovering around $120 per barrel, waiting for the next market moving developments. The recent upside extension was driven by China’s latest, and so far, successful, attempt to reopen major cities following Covid-19 lockdowns, a development which is likely to increase demand from the world’s biggest importer at a time where the global supply chains remain stretched due to the war in Ukraine.
However, against a challenging supply outlook the demand side is also receiving increased attention. The outlook for global growth remains challenged with a high frequency US GDP tracker monitored by the Federal Reserve pointing towards increased risk of zero growth in the second half, potentially resulting in a technical recession following the negative Q1 print.
In addition, the World Bank on Tuesday slashed global growth, warning of 1970’s-style stagflation. With supply being challenged by sanctions against Russia - the EIA forecasts output could take an 18% hit in 2023 - reduced investment appetite from the oil majors, and OPEC+ struggling to deliver the agreed production hikes, only a reduction in global demand, potentially driven by demand destruction at even higher prices will balance the market.
Crude oil priced in dollars is still around 20% below its 2008 all-time high, while in local currency, oil is at a record high for countries accounting for more than a third of the world’s oil demand according to this Bloomberg Opinion piece. With the cost of diesel and gasoline already at record levels in dollars, the impact on non-dollar-based consumers has become even more expensive.
The above charts show the margin, priced in dollars per barrel, refineries can make from producing gasoline and diesel from either WTI in the US or Brent in Europe. With the gasoline margin trading at a factor 3 to 4 above the long-term average, consumers are already paying prices that reflect crude at or even above $150. However, two years of lockdowns has not only given people's savings a boost, it has also increased the desire for mobility this upcoming summer holiday period. With that in mind, and together with increased demand for cooling in the Middle East, demand for fuel is likely to remain strong during the coming months, thereby further aggravating an already tight market outlook.
Later today, the EIA will release its weekly crude and fuel stock report, and even the prospect for an across-the-board stock build, if API’s data is confirmed, the market has still managed to trade higher ahead of the release.
WTI crude oil recorded the second highest closing price since 2008 on Tuesday, and as long it can maintain support around $116.50 per barrel, the risk of higher prices exist.
The main reason why the report is unlikely to offer much relief to a tight fuel market can be seen below with inventories of gasoline and distillate (diesel) at their lowest seasonal level in years. In addition, the market will also look for any change in demand for motor gasoline, currently at levels close to the five-year average.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...