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Saxo Bank: Trade tensions take their toll on commodities

March 13/ 09:47

Baku, Global trade tensions helped trigger a broad-based retreat across key commodities, Ole Hansen, head of Commodity Strategy at Saxo Bank, told Trend. The risk of an escalating tit-for-tat trade war could hurt global growth forecasts and subsequently, demand for raw materials, he said.

He noted that oil drifted lower as the focus turned to rising supply.

Crude oil traded near the lower end of the range that has emerged since January, he added.

“While receiving a great deal of directional input from the ebbs and flows of the stock market, a continued elevated bullish sentiment among speculative traders is being supported by robust global demand,” he said. “However, crude is simultaneously challenged by rising non-Opec supply and now also the aforementioned trade tensions.”

“Strong non-Opec oil production growth looks set to challenge Opec and Russia's ability to maintain price stability, at least in the short term,” he added. “In its latest Short Term Energy Outlook the Energy Information Administration sees US oil production averaging 10.7 million barrels/day in 2018, an increase of 1.4 million b/d from 2017. The IEA added to the unease when it said in its Oil 2018 report that production growth from the United States, Brazil, Canada, and Norway would more than meet global oil demand growth through 2020.”

The EIA continues to raise 2018 non-Opec supply growth while keeping demand growth steady, he said, adding that monthly reports from Opec and IEA are due this coming week on March 14 and 15.

“Given the recent resilience among speculative investors, they are unlikely to worry about a deeper correction as long as prices stay above $61/barrel on Brent crude oil and $57.50/b on WTI crude,” he said. “These levels represent the 38.2% correction of the June-January rally and while above the current price action, will be viewed only as a weak correction within a strong uptrend.”

“For now WTI crude oil has settled into a $60 to $65/b range with outside market events providing most of the input for daily price swings,” he noted. “A close below $60/b carries the risk of an extension to the mentioned key level at $57.50/b.”

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