Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access all our platforms from a single account.
Oil breaks higher on OPEC+ despite Iran and US shale risks
Ole Hansen
Head of Commodity Strategy
Summary: Ahead of today's OPEC+ meeting Brent crude oil has reached a four-month high above $70 while WTI crude oil trades at the highest level since October 2018. Driven by tightening market conditions as OPEC+ keep production tight and a continued recovery in global demand as vaccine rollouts support increased mobility.
What is our trading focus?
OILUKAUG21 – Brent Crude Oil (August)
OILUSJUL21 – WTI Crude Oil (July)
____________________________________________________________________________________________________
Ahead of today’s OPEC+ meeting Brent crude oil has reached a four-month high above $70 while WTI crude oil trades at the highest level since October 2018. Driven by tightening market conditions as OPEC+ keep production tight and a continued recovery in global demand as vaccine rollouts support increased mobility. The recent run up in prices culminating with today’s breakout has been led by WTI crude oil amid seasonal low U.S. gasoline stocks ahead of an expected busy summer driving season and crude stocks at Cushing, the WTI delivery hub, some 17% below the five-year average.
While the recovery in global fuel demand remains far from synchronized due to concerns over tighter Covid-19 related restrictions in Asia, the market seems happy in the short-term to focus primarily on the positive demand outlook in the U.S. and parts of Europe.
OPEC+ meets later today at 14:30 Vienna time, and while no additional production increases beyond the already agreed 0.8 million barrels/day for July is expected, the market has taken comfort from a very upbeat assessment by the groups Joint Technical Committee (JTC). The group confirmed OPEC’s latest assessment for a sizeable average 6 million barrel/day jump in oil demand in 2021. With no additional production increases beyond July the group expect a rise in global demand by December of almost 100 million barrels/day could trigger a daily deficit of 2.3 million barrels/day.
How the group and non-OPEC producers respond to the rising deficit will determine how far crude oil can rise over the coming months. With no action the price of Brent crude oil could be on course to reach $80/b before yearend, but as always plenty of developments could scupper such a forecast. The most important being the prospect for additional barrels from either OPEC+ or Iran, should a nuclear deal be reached, and not least prolonged (or new) Covid-19 lockdowns, especially in Asia.
Since their last meeting the prospect for surging non-OPEC+ production has faded with oil companies, many now constrained by Wall Street investors demanding action to fight climate change, not rushing to increase production to chase rising prices. So far even drillers in the Permian, the prolific shale basin in Texas, have shown restraint in order to avoid the boom-and-bust cycles of the previous decade. With this in mind the group may be tempted through inaction to support even higher prices in order to receive strong paydays before demand eventual starts to taper in a few years’ time.
However, such a step would raise another challenge that OPEC+ needs to address. A prolonged period of inaction allowing oil prices to rise further, could see inflation, through higher fuel cost, become even more entrenched and prolonged, eventually curbing growth and with that demand for crude oil.
Taking all these consideration into account we do not see the price of oil being allowed to rise as far as $80/b, however having broken back above $70, the next line in the sand around $72 would determine whether Brent has got enough momentum to challenge the thirteen year downtrend from the 2008 peak, currently around $78. We would however view a move of this magnitude as an overshoot that eventually may prove to be short-lived.
Latest Market Insights
Quarterly Outlook
-
-
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
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 ... -
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
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
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... -
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... -
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... -
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 ... -
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...