CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US oil inventories preview: Crude rebounds after hitting lowest levels since July 1st
Crude oil touched the lowest levels since the start of the month today as investors fretted over the pace of reopening in the world’s major economies. WTI fell to $39.27, but has since rebounded to trade $0.54, or 1.3%, higher at $40.29.
Crude oil remains rangebound ahead of this week’s main events, with $41.00 providing resistance and support at $39.00.
Oil unsteady as California orders bars to close
Risk sentiment has been knocked across the board after Californian governor Gavin Newsom ordered bars across the state to close and indoor operations to halt in restaurants, cinemas and museums.
The measures have raised questions over how quickly the world’s major economies can afford to reopen. California’s shutdown was prompted by an increase in the average number of new Covid-19 cases to over 8,000 per day during the past week.
OPEC committee to review production cuts
The timing of the shuttering in California is particularly troublesome for the oil markets, given that OPEC’s Joint Ministerial Committee meets this week to review the level of production cuts. The cartel is expected to taper the level of cuts by about 2 million barrels per day from August, down from the current record 9.7 million bpd.
OPEC Secretary General Mohammad Barkindo had said on Monday that the gradual easing of lockdown measures across the globe, in tandem with the supply cuts, was bringing the oil market closer to balance. An unwinding of the cuts just as some economies put the brakes on activity again threatens to send oil prices lower.
EIA data: Draw expected, but are the forecasts accurate?
Prices are also being kept contained ahead of the US Energy Information Administration’s weekly crude inventories report. The latest EIA data is expected to show a draw of 2.275 million barrels after last week’s surprise build of over 5.6 million barrels.
Data from the American Petroleum Institute is due at 20.00 UTC today and could provide better guidance, given that consensus expectations for the EIA report have been wide of the mark over the past few weeks.
US oil inventories preview: EIA raises WTI price forecast
US crude oil inventories are expected to see a draw of 3.2m barrels in the week to July 3rd, whilst gasoline stocks are expected to drop by 1.2m barrels.
Yesterday the American Petroleum Institute (API) reported a build in US crude stocks of 2m barrels, whilst gasoline stockpiles fell by 1.8m barrels. Crude at the Cushing, Oklahoma, hub rose 2.2m barrels.
Meanwhile the U.S. Energy Information Administration presented a more bullish fundamental case and raised its West Texas Intermediate (WTI) price forecast for 2020 to $37.55 a barrel, up almost 7% from the June forecast. 2021 prices are forecast to average $45.70 in 2021, a gain of 4% from before. The EIA said changes in supply and demand have shifted global oil markets from an estimated 21 million barrels per day of oversupply in April to inventory draws in June.
The EIA also said that it expects high inventory levels and surplus crude oil production capacity to cap the upside for oil prices in the coming months. However, as inventories decline into 2021, the upward pressure on prices should increase.
Other highlights from the EIA Short Term Energy Outlook:
- Brent crude prices forecast at $40.50 in 2020 and $49.70 in 2021
- Average US crude oil production to fall in 2020 and 2021 as forecast WTI spot prices remain less than $50/b through 2021. EIA forecasts that U.S. crude oil production will average 11.6 million b/d in 2020 and 11.0 million b/d in 2021.
- US liquid fuels consumption will average 18.3 million b/d in 2020, down 2.1 million b/d from 2019. Declines in US liquid fuels consumption vary across products. From 2019 to 2020, EIA expects jet fuel consumption to fall by 31% and gasoline and distillate fuel consumption to both fall by 10%.
Crude oil has been stuck in a tight range around $40 in recent days but continues to exert an upwards bias despite the potential head and shoulders reversal pattern evident on the chart.
US oil inventories preview: EIA data to confirm the biggest draw this year?
Crude oil has been able to power through the $40 handle today ahead of the US EIA crude oil inventories data, following a forecast-beating draw revealed by the American Petroleum Institute.
The latest API report estimated an 8.156 million barrel draw from US oil stocks last week, smashing forecasts for a draw of 710,000 barrels.
If accurate, it will be the largest draw of 2020 so far. Gasoline stocks also fell more than expected, with a draw of 2.459 million barrels last week, down from the previous week’s 3.856 million barrel drop, but still almost one million barrels higher than analysts had predicted.
US oil inventories report boosts oil after indecisive session
West Texas Intermediate crude oil had tumbled through the $40 handle to close at $38 per barrel on June 24th. Since then the benchmark has recovered, with yesterday’s API data helping oil gain around $0.60, or 1.6%. Yesterday’s indecisive trading saw prices briefly rise above $40 before retreating to close virtually flat at $39.60.
Brent oil has risen $0.60, or 1.5%, today to trade above $42 for the first time in five days.
The huge draw was some welcome news for oil bulls, after the commodity had been stuck trading sideways in line with other markets as investors struggled to weigh up improving economic data and rising numbers of coronavirus infections.
The API data has given crude oil fresh impetus on a day that could otherwise have seen more range bound trading.
On a positive note, the Chinese Caixin Manufacturing PMI beat expectations, rising from a revised 50.7 to hit 51.2 in June, against forecasts of 50.5.
But on the other hand, the US has recorded its biggest single day spike in cases since the pandemic started after reporting 47,000 new Covid-19 infections, raising fears that parts of the economy may have to be shuttered again to prevent further spread, which would hamper the recovery and dent the outlook for the oil demand.
Gold makes fresh highs, equities retreat to middle of ranges
Gold broke out to fresh multi-year highs above $1770 as real Treasury yields continued to plunge. US 10-year Treasury Inflation Protected Securities (TIPS) dipped to new 7-year lows at –0.66% and have declined by 14bps in the last 6 days. The front end of the curve has also declined more sharply in the last couple of sessions, with 2-year real rates at –0.81%. Indeed, all along the curve real rates have come down with the 30-year at –0.14%.
Gold has also found some bid on a softening dollar in recent days, with the dollar index down 1% in the last two sessions. Fears that global central banks are fuelling a latent inflation boom with aggressive increases in the money supply continue to act as the longer-term bull thesis for gold.
Gold climbs on falling bond yields, fears of long-term inflation bubble
As previously discussed, gold is a clear winner from the pandemic. Gold was initially sold off in February and the first half of March as a result of the scramble for cash and dollar funding squeeze. Since then gold has made substantial progress in tandem with risk assets since the March lows because of central bank action to keep a lid on bond yields. The combination of negative real yields and the prospect of an inflation surge due to massively increased money supply is sending prices higher.
Whilst the Covid-19 outbreak is at first a deflationary shock to the economy, the aftermath of this crisis could be profoundly inflationary. Gold remains the best hedge against inflation which may be about to return, even if deflationary pressures are more pronounced right now.
Covid-19 second wave fears keep stocks range bound
Stocks are a little shaky this morning after a strong bounce on Tuesday. European markets opened lower, with the FTSE 100 slotting back under 6,300 at the 61.8% retracement, which called for a further retreat to the 50% zone around 6220. The DAX is weaker this morning and broke down through support at 12,400, the 61.8% level.
The Dow is holding around 26,100 and the 50% level of the pullback in the second week of June, while the S&P 500 is finding support on the 61.8% level around 3,118. Equity markets continue to trade the ranges as investors search for direction on how quickly the economy will recover and whether second waves threats are real.
On the second wave, the US looks clearly to have suffered a new, and in the words of Dr Fauci, ‘disturbing surge’ in cases. Virus hotspots like Texas, Florida, California and Arizona are seeing cases soar. Such is the worry the EU may ban Americans from travelling to its member states. Tokyo has also reported a spike in cases, whilst Germany is locking down two districts in North Rhine-Westphalia and there has been an outbreak in Lower Saxony.
On stimulus, Treasury Sec Steve Mnuchin said the administration is looking at extending the tax deadline beyond July 15th and is seriously looking at additional fiscal support to build on the $2.2tn Cares Act.
Dollar retreats, RBNZ decision hits NZD
In FX, the dollar has been offered this week, allowing major peers to peel back off their lows. GBPUSD has regained 1.25, while EURUSD has recovered 1.13. The kiwi was offered today after the Reserve Bank of New Zealand left rates on hold but said monetary policy easing would need to continue. The RBNZ said it will continue with the Large Scale Asset Purchase programme of NZ$60b and keep rates at 0.25%. The central bank noted that the exchange rate ‘has placed further pressure on export earnings…[and] the balance of economic risks remains to the downside’.
Crude off multi-month highs, mixed on API data
WTI (Aug) pulled back having hit its best level since March, dropping beneath the $40.70 level that was the Jun 8th peak, but remained clinging to $40. Prices have slipped the near-term trend support. Again, I’m looking at a potential double top calling for a pull back to $35. However, the fundamentals are much more constructive, and indicate a stronger outlook for demand and supply than we had feared in May.
API data showed inventories rose 1.7m barrels last week, gasoline stocks declined by 3.9m barrels, while distillate inventories fell by 2.6m barrels. Crude stocks at the Cushing, Oklahoma, fell by 325,000 barrels for the week. EIA figures today are forecast to show a build of 1.2m barrels.
Chart: Gold up over 20% from its March low
EIA Crude Inventories Preview: Crude oil back below $41 after mixed API data
Crude oil rose to test $41 yesterday as markets bet on a stronger-than-expected recovery in demand, with the actions of OPEC+ continuing to provide support. It was the highest since March 6th, although crude has today opened below $40.50 and briefly dipped below the $40 handle. Will today’s EIA crude oil inventories data given WTI some direction?
Data yesterday from the American Petroleum Institute indicated a 1.7 million barrel increase in US oil stocks. Analysts had forecast a rise of 300,000 barrels. Even though the data showed a higher-than-expected build, the injection was still the lowest for three weeks. The report also showed gasoline inventories fell, pointing to increased demand for fuel.
Yesterday’s run of PMIs from across the globe has helped reignite hopes of a quick economic rebound:
- Australia’s services and composite indices unexpectedly leapt back into growth territory with readings above 50, while the manufacturing index printed just 0.2 points shy of the neutral level.
- The French manufacturing, services, and composite indexes all blew past forecasts to return to growth.
- PMIs for Germany and the Eurozone, while continuing to indicate a decline in output, rose further-than-expected to signal a slower pace of contraction than forecast.
- The UK manufacturing sector grew fractionally in June, after the index recovered much further than analysts had predicted. Services and the composite index also bettered forecasts, although they still pointed to a decline.
- US manufacturing shrank marginally in June, although the reading still beat expectations.
The readings helped improve the demand outlook. This, combined with support from a move towards greater compliance with production cuts from OPEC and its allies, helped crude oil hit three month highs yesterday, before profit-taking forced a retreat back towards $40.
Also supporting oil this week are revised average price forecasts for 2020 from Bank of America Global Research. Its average price forecast for WTI crude oil is now $39.70, an increase of nearly $8 per barrel.
EIA crude oil inventories preview: Can we trust the forecasts?
Yesterday’s API oil inventories report showed a massive build, even though a draw had been expected. Forecasts for today’s US EIA crude oil inventories also predict a drop – how accurate are these predictions?
Crude oil, Brent oil drop after API data shows huge build
Yesterday’s crude oil stock change report from the American Petroleum Institute was expected to show that inventories fell by 1.7 million barrels in the week ending June 5th. Instead, stocks rose nearly 8.5 million barrels.
Oil fell further from the three-month highs hit on Monday on the back of the data. Today crude oil is currently down -$0.38 to trade around $38.12, while Brent oil is trending at $40.46 after falling -$0.29. This is partly due to the API data, but also because of expectations OPEC will not extend the record level of production cuts beyond July.
Will EIA data confirm huge stockpile build?
The Energy Information Administration releases its official crude oil inventories report later today. Forecasts were for a draw of over two million barrels, although in light of the API data this seems unlikely.
In fact, over the past five weeks forecasts for EIA data have been significantly wrong. On average, the forecast has been out by around 5 million barrels. In the past four weeks, forecasters have got the direction of inventory stocks wrong, predicting a build when in fact stocks fell, or vice versa.
Table: EIA crude oil inventories forecasts vs actual
Jun 03, 2020
May 28, 2020
May 20, 2020
May 13, 2020
|May 06, 2020||
Meanwhile, for the past three weeks, the API data and the EIA crude oil inventories report have both shown stockpiles moving in the same direction.
For the week commencing May 25th, the API data showed a build of 8.7 million barrels – under a million barrels above the EIA print.
For the week beginning May 18th, the API numbers were just 183,000 barrels below the EIA’s reported draw of -4.983 million.
OPEC meeting weighs on crude oil ahead of US EIA inventories data
Crude oil is on soft form today as markets await news on the next OPEC meeting and today’s US crude oil storage data.
WTI and Brent futures contracts for August have crept below opening levels ahead of the EIA data. Earlier in the session, crude oil had spiked above $38, while Brent had broken above $40 per barrel – both of which were the highest levels since early March.
Oil weak as news of OPEC meeting disappoints
Both crude oil and Brent oil have been on volatile form today as markets struggle to decide what seems to be the most likely outcome of the upcoming OPEC meeting.
Markets had been encouraged earlier in the week by indications that the meeting would be moved forwards to tomorrow (Thursday, June 4th), suggesting that members were keen to agree a deal to keep supporting prices.
There had been rumours that the current record level of production cuts, which at 9.7 million barrels per day equates to nearly 10% of global demand, would be extended all the way to the end of the year.
Compliance with the cuts has been running at around 75%, and the latest reports indicate that this is causing tensions amongst members of the cartel. Reuters has reported today that the OPEC+ group, which comprises the cartel and its allies, is likely to extend the cuts by one month.
This has not impressed markets, with traders having hoped for several more months of the higher production curbs.
Can EIA crude oil inventories data support prices ahead of OPEC meeting?
Data from the American Petroleum Institute released yesterday showed a surprise drawdown of half a million barrels. This was against market expectations of a 3 million barrel build.
Today’s official EIA data is also expected to show a build of 3 million barrels, after stocks rose by nearly 8 million barrels the previous week. A surprise draw in line with the API figures could lend some support to crude oil prices, although the issue of OPEC will remain the key driver of price action.
EIA Crude Oil Preview, May 28th: Data to confirm a huge build?
WTI crude oil and Brent oil are cautiously higher ahead of today’s US oil inventories report.
The official weekly report from the Energy Information Administration is expected to show a drop of nearly 2 million barrels.
Crude oil dives as API data shows surprise build
But data yesterday from the American Petroleum Institute stunned markets with a surprise 8.1 million barrel build. Like the upcoming EIA data, forecasts had been for a draw of 2 million barrels.
WTI crude oil futures contracts for delivery in August have been range bound since the middle of May, with $32 providing support and resistance at $35 keeping a ceiling on rallies.
Chart: WTI crude oil futures contracts, August delivery
Traders have struggled to find direction: on the one hand, the reopening of global economies will help stimulate demand, but on the other, the world remains awash with excess supply.
Sentiment had already taken a hit yesterday even before the API data, as reports cast doubt over Russia’s commitment to OPEC+ production cuts.
Tensions between the US and China over a new security law for Hong Kong is also weighing on risk-appetite, although so far today oil has continued to find bid.
The API data saw crude oil prices fall over $2 per barrel, while Brent was off over $1.50. If the EIA data confirms that inventories rose again last week, today’s gains could quickly turn to losses.
Chart: Brent oil futures contracts, August delivery
WTI rallies after EIA crude oil inventories data shows unexpected draw
Crude oil rallied and held gains after a big draw on US crude oil inventories. Crude stockpiles 5m barrels in the week to May 15th, Energy Information Administration said on Wednesday, against an expected build of 1.2m barrels. Gasoline stocks rose 2.8 million barrels vs an expected 2.1m drop. Distillate stockpiles were up by 3.8 million barrels, which was more than expected.
It comes after the EIA predicted a record fall for US production next month. Production in the top 7 shale basins is forecast to fall to 7.822 million bpd in June, down from 8.019 million bpd this month.
The fears are two-fold: one that as prices rise the shale supply gets switched back on, leading to a glut again; and two that the economic reality is worse than the market sentiment implies: demand is not coming back. The gasoline inventories are a warning to traders. Nevertheless the upwards thrust continues for WTI with momentum still apparently with the bulls.
Having cleared the 50-day SMA the rally has continued to the neckline of the V-shaped bottom and now bulls will look to close the Mar 6th-9th gap. The CCI is warning of a possible reversal on the cards with the divergence between the 20-day oscillator and the price action (pink lines) with lower highs made on the CCI. MACD still looks to be with a positive trend. The 200-day SMA is above but this is slightly disturbed by the negative pricing of the May contract which occurred after we had rolled to the next month.
The Spot (continuous contract) however shows a similar pattern as the 200-day line is approached at the topside of the ascending wedge.
WTI Crude Oil Futures (Aug 2020) price chart:
WTI Crude Oil Spot price chart:
US crude oil inventories to increase again after last week’s draw?
Today’s incoming US crude oil inventories data is expected to show a build of 1.1 million barrels.
However, last week’s report revealed a surprise draw of over 700,00 barrels, and yesterday’s data from the American Petroleum Institute showed a drop of 4.8 million barrels. Analysts had forecast a 7.6 million build.
If today’s official figures from the Energy Information Administration are in the same ballpark as the API’s it would represent the biggest decline in stockpiles this year. So far in 2020 the two sets of reports have largely printed in line with each other, although historically there can be large discrepancies.
Futures on West Texas Intermediate crude oil for delivery in August continue to trade around the nine-and-a-half-week high struck on Monday. Prices are up around $0.80, or 2.3%.
Brent oil futures for July are trading $0.90, or 2.6%, higher.
Concerns over the vast demand destruction caused by the Covid-19 pandemic continue to weigh on oil markets; gains for WTI could be undone if the EIA crude oil inventories data does show another build.