Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Attacks on Russian refineries lift risk premium and crude prices
Ole Hansen
Head of Commodity Strategy
- Crude oil breaks long-held range on supply disruptions and export curbs
- Focus on FOMC outcome and EIA's weekly crude and fuel stock report
- The triangle breakout suggests a 5-8% upside for crude oil
In last week's crude update, we highlighted how the recent lack of a price catalyst had pushed the four-week rolling average trading range in WTI and Brent to a ten-year low. Crude has nevertheless been seeing a steady but calm ascent since December, when Houthi attacks on ships in the Red Sea raised the geopolitical temperature while supporting tighter market conditions with millions of barrels of crude and fuel products being stuck at sea for longer.
However, since then the combination of continued Ukrainian drone strikes on Russian refineries, lifting gasoline and diesel prices, and Iraqi plans to reduce oil exports in the coming months to compensate for recent overproduction relative to OPEC+ limits, helped drive WTI and Brent higher in the process supporting fresh momentum buying from funds looking for an extension of the long-held range. Also supporting prices were the latest Oil Market Report from the International Energy Agency (IEA) in which they raised their global oil demand forecast to 1.3 million barrels per day, while shifting their balance for the year from a surplus to a deficit based on the assumption OPEC+ will maintain current production curbs through 2024.
The biggest driver supporting the latest buying has undoubtedly been an actual supply disruption in Russia after several recent drone attacks on oil refineries added upward pressure to fuel markets, driving up crude demand, with JP Morgan estimating that 900,000 barrels per day of Russian refinery capacity being offline. A development that, depending on the duration, may support a more sticky risk premium, than those that were added following the December attacks in the Red Sea.
Crude prices have softened a bit today ahead of the FOMC meeting that may shape the broader market tone through its impact on rates, bond yields and not least the dollar which trades higher for a fifth day, primarily driven by yen weakness following a historic rate hike from the Bank of Japan that ended up leaving more questions than answers. Ahead of the announcement, the EIA will publish its weekly crude and fuel stock report, with surveys and yesterday's American Petroleum Institute report pointing to a draw in crude and gasoline stocks. I will post the results of the EIA report on X at @ole_s_hansen once published at 13:30 GMT.
According to Kim Cramer, our technical analyst, the triangle breakout suggests a 5-8% upside for crude oil, with Brent potentially targeting USD 90-93 per barrel and WTI USD 87-90 per barrel. In the short term, some resistance can be found at USD 88 in Brent, the 61.8% retracement of the September to December slump, while recent established longs above USD 84.75 in Brent and USD 80 in WTI will need reassurance the risk premium can grow further. Failure resulting in a break below the mentioned levels could see the bullish scenario being invalidated.
Commodity articles:
19 Mch 2024: How to add copper to your portfolio
15 Mch 2024: Commodity weekly: Green shoots seen across key sectors
13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: Investing with options - Gold optionality
6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
29 Feb 2024: Podcast: Why speculative interest is important to understand
28 Feb 2024: Oil price stuck in neutral despite underlying strength
27 Feb 2024: Resilient gold market defies lower rate cut predictions
22 Feb 2024: Copper short squeeze fades ahead of key resistance
21 Feb 2024: Gold's resilience despite recent futures and ETF selling
20 Feb 2024: WTI crude eyes resistance amid improved signals
16 Feb 2024: Commodity weekly: Grains tumble; Industrial metals eye China boost
15 Feb 2024: US rate cut delay drives gold below $2000
13 Feb 2024: Video: What is driving Cocoa's sweet price
9 Feb 2024: Commodity weekly: Refined product strength lifts crude
9 Feb 2024: Podcast: Year of the metals
7 Feb 2024: Crude oil supported by tightening fuel outlook
6 Feb 2024: Gold and silver turn defensive on reduced Fed rate-cut optimism
2 Feb 2024: Commodity weekly: Tight supply adds fuel to uranium and cocoa rally
1 Feb 2024: Commodities: January performance and ETF flows
Previous "Commitment of Traders" articles
18 Mch 2024: COT: Buying spreads from precious metals to copper and grains
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
26 Feb 2024: COT: Record corn short, cocoa surge no longer supported by speculators
19 Feb 2024: COT: US inflation surprise drives broad selling of metals
5 Feb 2024:COT: Speculators chase false crude break; grain short extends further
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