Head of Commodity Strategy
Key points
Crude oil futures have settled into a nervous wait-and-see mode, with major two-sided risks keeping prices rangebound and stuck for now. Having witnessed a slump below USD 70 last month, followed by an attempt to break above USD 80, Brent crude has settled into a relatively narrow range around USD 75. While the activity points to calm markets, plenty of risks continue to build, which could see the price once again test either of the two mentioned boundaries.
Besides stimulus news from China, the main short-term upside risk to prices remains related to developments in the Middle East, and not least the impact of an expected Israeli attack on Iran in retaliation for the 1 October missile attack, when Iran launched nearly 200 ballistic missiles at Israeli targets. Such an attack may lead to further destabilisation, and if Iran’s energy infrastructure is damaged, it raises the risk of supply concerns from a region that accounts for about a third of world output.
Meanwhile, the downside risks are multiple, with the upcoming US elections increasingly becoming a binary event that may impact risk appetite across markets. Not least after the latest polls have raised the prospect of a ‘Red Sweep’ on November 5, where the Republican party may end up controlling both the White House and Congress. This scenario raises concerns about excessive government spending, pushing the debt-to-GDP ratio higher, while fueling inflation fears. As a result, we are currently seeing US rate cut expectations being lowered, while Treasury yields and the dollar are tearing higher—all developments that, together with Trump’s tariff plans on imports from China and other countries, may end up dampening economic growth and, with that, the demand outlook in both the US and China.
In addition to demand concerns, the market also has to deal with the prospect of OPEC+ adding currently unwanted barrels back into the market from December. Responding to falling prices, the OPEC+ group of producers has, since November 2020, repeatedly been cutting output to support stable and high prices. While stability, until recently, was successfully achieved, the higher price target has failed, not least due to a major slump in China’s oil demand growth.
Saudi Arabia, the biggest contributor with around 1 million barrels of these cuts, has, in the past couple of years, seen its crude revenue and market share slump. The outlook for slowing demand growth, not least in China, has probably prompted them to accept a lower price tag for crude and, with that, the need to increase production.
In the coming months, the direction of travel will be determined by several major developments, such as the impact of the US election result, the pace of electrification, not least in China, which is approaching peak demand for gasoline and diesel; the impact of rate cuts on economic activity; OPEC’s ability to manage production increases without lowering prices; and not least geopolitical developments.
Recent commodity articles:
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
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)