Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Oil bounces on trade optimism ahead of weekly EIA report
Ole Hansen
Head of Commodity Strategy
Summary: Crude trades up on the day but unchanged on the week ahead of the weekly stock report from the U.S. Energy Information Administration.
WTI crude oil has bounced on renewed trade optimism ahead of the 'Weekly Petroleum Status Report' from the U.S. Energy Information Administration. At $53.50/b the price of CLX9 is more or less unchanged from where it was this time last week. During this time the deteriorating outlook for a trade deal between the U.S. and China helped drive the price to a low $51/b. Thereby almost eclipsing the August low at $50.50/b.
However the unexpected news that China may be open to a partial deal has helped put some optimism back into not only oil but also other commodities such as soybeans. Turkish troop movements on the Syrian border are likely to further have reduced the selling appetite.
In our monthly commodity deep dive held earlier today - replay available Thursday - we highlighted the reasons why we believe that the downside risk, despite economic angst, looks limited from here. The geo-political risk premium following the September attack in Saudi Arabia has been removed but there are still several reasons why it could suddenly re-emerge. So while the pendulum continues to swing between demand and supply worries we suspect that WTI and Brent will stay range bound around $55/b and $60/b respectively.
At 1430 GMT the EIA will release its weekly stock report and if data from the American Petroleum Institute are confirmed, both crude oil and gasoline will show changes in line with their seasonal behaviour. With refinery demand beginning to slow crude stocks rise while gasoline stocks fall. In their monthly Short Term Energy Outlook out yesterday, the EIA raised the prospect for U.S. oil production hitting 13 million barrels/day in December. The Saudi Aramco attack may have triggered a pickup in demand for U.S. produced gasoline so that number will also be closely watched.
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