Crude oil holding up well despite multiple headwinds

Crude oil holding up well despite multiple headwinds

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil has extended its decline following yesterday's break below technical support. The latest weakness apart from the technical sell extension has been driven by continued worries about the pace of the recovery in global fuel demand and renewed dollar strength following last nights debacle of a debate between Trump and Biden.


What is our trading focus?

OILUKNOV20 – Brent Crude Oil (November)
OILUSNOV20 – WTI Crude Oil (November)

____________________________________________________________________________________________________

WTI Crude Oil (OILUSNOV20) and Brent Crude Oil (OILUKNOV20) have both extended their declines following yesterday’s break below technical support. The latest weakness apart from the technical sell extension has been driven by continued worries about the pace of the recovery in global fuel demand and renewed dollar strength following last nights debacle of a debate between Trump and Biden.

Adding  to this, speculation that Libya’s oil industry, all but shut down since January because of civil war, may see rapid output growth over the coming months. So far production has returned to 250,000 barrels/day from sub-100,000 just a few weeks ago with JPMorgan and Goldman Sachs both seeing it reach 500,000 barrels/day by the end of year.

The demand side meanwhile remains troubled by the continued rise in Covid-19 cases leading to renewed lockdowns. With the timing of a widely available vaccine still uncertain, the captains of the three biggest independent oil trading houses don’t see a meaningful recovery in global oil demand for at least another 18 months.

Despite these latest  developments, crude oil has done relatively well with the price still holding levels seen in June when the recovery story looked somewhat brighter. While resistance in Brent crude oil as per the chart looks solid around $43.50/b, the downside has so far also been capped by a number of recent lows around $39.50/b. For the final quarter we lift our Brent crude oil range by 3 dollars to a $38/b to 48/b range with the downside risks most dominant during the coming weeks.

Source: Saxo Group

During the recent weakness WTI crude oil has seen its discount to Brent narrow on speculation that U.S. oil production may shrink further over the coming months. The third quarter Energy Survey by the Dallas Fed, released last week found that 66% of oil and gas executive thought that U.S. oil production had already peaked. In addition the survey also found that a price of WTI above $51/b was needed in order to increase production. In addition many producers may struggle to source financing while the potential election of Joe Biden as president could pose a structural downside risk given his push towards green energy.

These developments all point to a price supportive lowering of U.S. production over the coming months as the price and with that drilling activity remain below the level needed to maintain production at current levels. The U.S. Energy Information Administration will later today publish its Monthly Crude Oil and Natural Gas Production report which will include production data for July, a figure more accurate than the weekly estimates that can be found in the ‘Weekly Petroleum Status Report’ also due today at 14:30 GMT.

Later today, the U.S. Energy information Administration will release its ‘Weekly Petroleum Status Report’. The American Petroleum Institute delivered mixed report last night with the biggest surprise relative to EIA surveys being a rise in gasoline stocks and a bigger than expected drop in distillates, primarily diesel. 

As per usual I will publish the result of the report on my Twitter handle @Ole_S_Hansen

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    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...
  • FX Outlook: USD in limbo amid political and policy jitters

    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 ...
  • Macro Outlook: The US rate cut cycle has begun

    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...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    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...
  • Equities: Are we blowing bubbles again

    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...
  • Macro: Sandcastle economics

    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...
  • Bonds: What to do until inflation stabilises

    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 ...
  • Commodities: Energy and grains in focus as metals pause

    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...
Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.