Commodities Outlook: Return of the New Oil Order
At a Glance
Lead — The resurgence of US shale production, driven by new pipeline capacities, is reshaping the oil landscape into what Goldman Sachs refers to as the 'New Oil Order.' This is significant for FX traders, as the dynamics of oil can directly influence currencies tied to commodity exports. Per the full note from Goldman Sachs, emerging supply from the Permian Basin will stabilize pricing while also encouraging faster cycles in production efficiency.
Key Takeaways
- 01US shale production is rising rapidly, supported by new pipeline capacity.
- 02Goldman Sachs identifies a transformation into a fast-cycle, lower-cost oil market.
- 03The USD/CAD pair is likely to be influenced by shifting oil prices.
- 04Our outlook leans towards a higher target compared to some peers.
Full Analysis
What the desk is arguing
The desk posits that the increasing output from US shale due to enhanced pipeline infrastructure represents a pivotal shift in the oil market dynamics. This view aligns with insights from Goldman Sachs, emphasizing how the new supply potential from the Permian Basin is re-establishing a lower-cost production paradigm.
Supporting this narrative, Jeff Currie highlights that as spot prices rebound, US shale growth will play a crucial role. With pipeline capacities increasing, the supply from the Permian Basin is anticipated to push market operations toward a more flexible, cost-effective model.
Where it sits in our coverage
Our consensus target for the USD/CAD exchange rate stands at 1.075, within a range of 1.04 to 1.12. Key firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This outlook suggests that our view is slightly more optimistic than Bank of America's, which projects a lower bound at 1.04. Notably, our target lies near the upper range, indicating a bullish sentiment among our strategists.
How other firms see it
Several institutions, including jpmorgan, align with this optimistic stance on the potential for US shale to impact the oil markets positively. On the contrary, bofa argues for a more cautious approach, with their target reflecting concerns surrounding the sustainability of high oil prices.
Traders should closely monitor oil price trends and production data, as they are likely to affect related pairs such as USD/CAD, especially with respect to commodity-linked currencies dependent on oil pricing dynamics.
Market Implications
Watch for key shifts in oil supply dynamics as they could influence the USD/CAD exchange rate. A breach above 1.075 could reinforce bullish positioning, while fluctuations in oil prices may present trading opportunities.
From the original
Making a comeback alongside higher spot prices this year will be the rapid growth in US shale, says Jeff Currie, with new pipeline capacity unlocking supply from the Permian Basin and re-anchoring the market around a fast-cycle, lower-cost New Oil Order. This podcast was recorded
Related speeches
4 itemsUBS Morning audio comment: Trickle or treat?
Lead — The desk interprets the recent commentary from UBS, presented by Chief Economist Paul Donovan, as a signal that the gradual flow of oil through the Strait of Hormuz reduces fears of a physical supply shortage and alleviates some geopolitical stress around Iran. The release of oil is expected to influence global crude prices in the short term and could have broader implications for currencies tied to commodity markets. Per the full note, this new context may strengthen sentiment in risk-sensitive currencies, adding a fresh layer of complexity to ongoing volatility in the FX landscape.
The Commodities Feed: Oil trades lower as US-Iran deal noise grows
Lead — The desk posits that the recent downturn in oil prices is intertwined with the emerging talks of a potential US-Iran deal, which could significantly alter the geopolitical landscape affecting energy markets. Per the full note from ING Economics, the noise from these negotiations has contributed to a bearish sentiment in the oil sector. Additionally, the market is grappling with ongoing supply dynamics, further complicating immediate price trajectories. This environment calls for traders to be vigilant regarding the continuous regulatory and geopolitical developments possibly impacting price movements in commodities such as oil.
Global Commodities: A Perfect Storm
The FX desk posits that the shifting dynamics in global commodity flows, particularly through key chokepoints like the Strait of Hormuz, will create substantial volatility in energy prices and impact currencies tied to these markets. Per the full note from J.P. Morgan, increased flows of oil tankers indicate a robust demand and supply recovery, while restrictions on LNG exports could set off a crisis with low storage levels heightened by an El Niño-driven rise in cooling demand. This duality underscores the necessity for traders to monitor energy-linked currencies closely as they navigate positions amidst a backdrop of potentially divergent price movements.
The Commodities Feed: Oil rebounds on renewed US-Iran tensions
Lead — As tensions rise between the US and Iran, oil prices are experiencing a notable rebound, driving attention in the commodities market. Per the full note from ING Economics, the geopolitical friction has rekindled investor interest in oil, with prices expected to reflect the heightened risk environment. The market anticipates volatility, requiring traders to keep a close eye on crude benchmarks as the broader implications for exchange rates unfold.
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