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 supported by US stock draw
Ole Hansen
Head of Commodity Strategy
Summary: WTI remains stuck around $55/b with the prospect of a big stock draw and Opec production cuts off-setting continued worries about global growth and demand
Crude oil continues to recover after taking a hit last Friday when China announced a 5% tariff from September on US crude oil imports. Since then the market sentiment has improved with Opec saying that they expect a “significant” reduction in global crude inventories during the second half. Adding to this a somewhat less confrontational tone from Trump towards China and not least raised expectations that US stockpiles dropped significantly last week.
The US Energy Information Administration will release its ‘Weekly Petroleum Status Report’ at 14:30 GMT and expectations for a bumper drop was raised when the American Petroleum Institute last night said that stocks dropped by more than 11 million barrels last week. Especially the continued drop at Cushing, the delivery hub for WTI crude oil futures, helped reverse some of the relative WTI losses seen against Brent since last Friday following the Chinese announcement.
Check my Twitter feed for comments and charts once the EIA report has been released.
The WTI crude oil chart below shows how the market has been pivoting around $55/b since June. During this time the focus has been alternating between the positive impact of OPEC+ production cuts and the seasonal pick-up in demand and trade war driven worry about a global economic slowdown. We continue to view the multiple attempts to recover during this time as fragile given the recessionary risks currently being signaled through the collapse in global bond yields and the inversion of the US yield curve.
Ahead of tariff hikes, both US and Chinese, on September 1 we see limited upside potential with resistance being the trendline from the April peak. The downside risk below $50/b is equally limited through OPEC’s willingness to cut production to maintain stability.
Check my Twitter feed for comments and charts once the EIA report has been released.
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