Market update: crude oil price claims the high ground as market scrambles

[MongiIG]

Crude oil jumped to print fresh highs again as worries over China appear to be being ignored for now and the oil market structure might be supportive of higher WTI.

 

Source: Bloomberg

 

WTI Shares Commodities Petroleum Central bank Futures contract

Daniel McCarthy | Strategist, | Publication date: Tuesday 19 September 2023 05:56

Crude hits 10-month high

Crude oil made another 10-month high overnight despite some reservations about the outlook for China’s economy and central banks’ tight monetary policy. Nonetheless, the underlying market structure appears intact for now. The Brent futures contract touched $94.95 per barrel of crude oil (bbl) and the WTI contract hit $91.36 bbl.

Yesterday at the 24th World Petroleum Congress in Calgary, Canada, Saudi Energy Minister Prince Abdulaziz bin Salman expressed reservations when speaking about China’s demand going forward. He said: "The jury's still out. This is the fundamental issue – the jury's still out."

The world’s second-largest economy has been struggling to reignite growth coming out of the pandemic era. Recently, the Saudi Arabian national oil company Aramco and the US International Energy Agency (IEA) lowered their forecasts for global oil demand.

Global growth needs to slow down

The backdrop to the current price action has been the tightening of many of the major central banks’ monetary policy to rein in high inflation. The concern is that global growth will need to slow to a point that could see oil demand undermined down the track.

Last week the European Central Bank (ECB) hiked its target rate again by 25 basis points (bp) to 4.00% and lowered its economic growth outlook. The Federal Reserve (Fed) meets tomorrow but is anticipated to keep rates on hold at this meeting, as is the Bank of Japan on Friday.

On Wednesday however, the Bank of England (BoE) is forecast to lift its cash rate by 25 bp to 5.50%. To learn about the impact of central banks on markets, click on the banner below. Despite all this, crude oil continues to surge higher. An indication of underlying supply and demand dynamics within the oil market is backwardation and contango.

Backwardation occurs when the futures contract closest to settlement is more expensive than the contract that is settling after the first one. It highlights a willingness by the market to pay more to have immediate delivery, rather than having to wait. It is sometimes referred to as a ‘time-spread’ between futures contracts with different expiry dates by traders.

Which particular contracts to look at is a personal preference, but looking at the front two contracts, backwardation has accelerated of late. If this remains the case, it might be revealing that demand remains robust, despite the higher prices. Stockpile data from the American Petroleum Institute (API) later today and the EIA tomorrow might give further clues on the state of the balance of supply and demand in the market.

WTI crude oil and backwardation chart

 

Source: TradingView

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

[phillo]

[Ant1971]

sorry not sure what this  shows ?