Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
You can access all of our platforms from a single Saxo account.
Crude oil frets possible OPEC discord
Ole Hansen
Head of Commodity Strategy
Summary: The impressive November rally in crude oil, fuel products and oil producers on vaccine optimism has grinded to a halt. A surprise discord between Saudi Arabia and the U.A.E. raising the stakes ahead of Thursday's delayed OPEC+ meeting. Failure to postpone the precious agreed January production hike risks sending oil lower to challenge recently established long positions. This given the current mismatch between weak Covid-19 related fuel demand and the market increasingly having started, perhaps prematurely, to price in an expected strong recovery in 2021.
What is our trading focus?
OILUKFEB21 – Brent Crude Oil (February)
OILUSJAN21 – WTI Crude Oil (January)
____________________________________________________________________________________________________
The impressive November rally in crude oil, fuel products and oil producers on vaccine optimism has hit a stumbling block given the potential risk of OPEC+ failing to curb production for a few more months. The vaccine news last month helped drive a +20% rally in crude oil and +40% in some oil company stocks on the assumption that a brighter demand future awaits in 2021. With lockdowns and reduced mobility being replaced by surging demand from returning commuters together with renewed demand for holidays and business travels.
OPEC met on Monday and following a long meeting it was clear that the group struggled to find common ground in how to deal with a short term troubling demand outlook and the expected pickup next year. Given continued lockdowns and reduced mobility in Europe and the U.S., the market was expecting OPEC+ would rollover the current agreement and postpone the planned 1.9 million barrels/day production hike by a few more months.
Surprisingly this time, it was not a discord between Russia and Saudi Arabia that prevented the group from reaching a clear agreement on whether to delay the planned production increase. Instead a perhaps more dangerous divide, from an OPEC stability perspective, has emerged between Saudi Arabia and the U.A.E., two GCC countries that normally speak with one voice.
Without ruling out a price supportive delay, the U.A.E. Energy Minister has insisted on bigger compliance and speedy implementation from overproducing countries. Failure to reach an agreement could send crude oil lower by several dollars, thereby risking a snowballing effect of long liquidation from speculators who recently bought more than 180 million barrels.
We maintain the view that cracks will be repaired as anything but an agreement to postpone would be a massive own goal. With the expected pickup in fuel demand - once the Covid-19 cloud lifts - being just a few months away, the risk of sending prices lower just before the finish line makes little sense.
That aside, the current risk reward in crude oil following the November surge, is now potentially slightly skewed to the downside as the market may struggle to find more value in a Brent price approaching $50/b in a not yet balanced market.
Also as the vaccine optimism begin to be fully priced in some nervousness may start to emerge with regards to just how strong the anticipated demand pick up will be. While Asia, led by China, is already firing on all cylinders, the outlook for the rest of the world looks a bit more challenging. Two recent headlines from the Wall Street Journal highlight the potential challenges that lie ahead.
According to airline experts, between 19% and 36% of all business trips could disappear, given efficiencies developed during the lockdown and the cost saving nature of avoiding sending representatives around the world. At the same time, the work-from-home culture has increasingly been adapted by companies and workers around the world. Companies not experiencing any loss of productivity are likely to support this new culture as it reduces cost while improving workers quality of life, especially in big cities where the daily commute often “steals” a lot of time.
Next up today at 15:30 GMT, the “Weekly Petroleum Status Report” from the U.S. Energy Information Administration (EIA). Last night crude oil traded lower after the an industry report from the American Petroleum Institute showed a surprise build in crude oil and a bigger-than-expected rise in both gasoline and distillate stocks.
While the report may only have a short-term impact, the market remains preoccupied with the early 2021 outlook and Thursday’s delayed OPEC+ meeting.
As per usual I will post updates and comments on my Twitter handle @ole_s_hansen
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
China Outlook: The choice between retaliation or de-escalation
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: A bumpy road ahead calls for diversification
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX outlook: Tariffs drive USD strength, until...?
John J. Hardy
Global Head of Macro Strategy
-
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
-
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
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
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
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 ...