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 market awaits OPEC+ response to SPR release
Ole Hansen
Head of Commodity Strategy
Summary: Crude oil reacted decisively positive to yesterday's announcement about a global release of Strategic Reserves. Brent crude initially climbed 3.8 percent and so far today it has managed to hold on to most of those gains in the belief the release is unlikely to have a long-term negative impact on prices. In this update we take a closer look at why the market decided to react in this manner while also looking ahead to EIA's weekly stock report and next week's important OPEC+ meeting.
Crude oil reacted decisively positive to yesterday’s announcement about a global release of Strategic Reserves. Brent crude initially climbed 3.8% and so far today it has managed to hold on to most of those gains in the belief the release is unlikely to have a long-term negative impact on prices.
Some of the reasons behind the bullish reaction to the news are:
- A ten percent drop, partly due to raised expectations, during the past couple of weeks helped reduce the effectiveness of the actual announcement.
- The decision to add supplies from strategic reserves was not driven by an acute shortage of supply but more a political signal from the under-pressure Biden White House to show action towards combatting rising inflation and high gasoline prices.
- Out of the 50 million barrel US SPR release, 18 million will come from speeding up an already planned release, which so far has supplied 31 million barrels into the market this year. The additional 32 million being offered to refineries will have to be returned at a later day before 2024, thereby creating a zero sum solution. In addition, international contributions were smaller than expected with China being ambiguous on its involvement, despite being named as one of the participants.
- Expectations for a balanced market in early 2022 as projected recently by all the major forecasters EIA, IEA and OPEC would support lower prices. But if they turn out to be wrong, the latest reduction in SPR could leave the market worried about available spare capacity to fend off another price spike. Not least considering OPEC+ may have little spare capacity left by then.
- Equally important, the OPEC+ alliance called the move unjustified given current conditions and as a result they may opt to reduce future production hikes, currently running near 12 million barrels per month. The group meets next week to set the target for January.
- Given the assumption of a balanced oil market next year, OPEC+ may at its meeting next week decide to reduce planned production increases in order to counter and partly offset the U.S. release.
Failure to send prices lower may also raise speculation about an outright ban on US crude oil exports, but such a move could potentially cripple domestic refinery activity. Many U.S. refineries can not use the oil currently being produced from fracking as the quality is to light. Instead the US is dependent on imports of heavier grades from Canada, Mexico and OPEC while shipping its light crude oil to refineries that can use it in Mexico, Canada, China, Japan and India.
While the short-term oil market focus is squarely on the December 2 OPEC+ meeting and whether the group agree to delay or reduce planned increases for January and beyond, the market will also try to gauge the current status in the US oil market in EIA’s weekly inventory report.
Last night the API released their weekly update and their assessment of higher crude oil and gasoline stocks both went against surveys pointing to a drop. The report will also shed some light on the current pace of SPR releases which for the last ten weeks has been averaging 1.5 million barrels per week. Furthermore the market will also keep an eye on refinery activity to see whether there is much room for the additional SPR barrels.
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...