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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 38 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 38 institutional desks. No promotion.
The desk sees the current downturn in crude oil prices, particularly the ICE Brent nearing $70/bbl, as a reflection of increased flows through the Strait of Hormuz and a normalization of supply dynamics. Per the full note from ing-think, this leads the prompt market to move into contango, signaling an oversupplied condition. This shift in supply coincides with continued releases from the U.S. Strategic Petroleum Reserve (SPR), which has exerted additional pressure on prices. Since product inventories in key regions have seen varied changes, traders should also be attentive to the fundamentals of refined products, especially as market behavior suggests potential buying on dips. Moreover, the recent data indicates that ARA and Singapore petrol stocks are falling but remain below the five-year average, indicating a tightening backdrop despite the fundamentals suggesting bearish trends in crude. We are likely nearing a pivotal point where the interplay between supply normalization and inventory trends could swing market sentiment accordingly.
The desk posits that the continuing decline in oil prices is driven by improved supply flows, particularly through key choke points like the Strait of Hormuz. The ongoing market conditions are leading the Brent forward curve towards contango, indicating a shift towards oversupply, as detailed in the report from ing-think.
This assessment is underscored by recent inventory data showing fluctuations in refined products with total inventories in the ARA region dropping to 4.53 million tonnes. This includes notable declines in light products such as gasoline and naphtha, despite some growth in middle distillate stocks, pointing to a mixed supply scenario that traders should closely monitor.
This view aligns with JPMorgan’s moderately bullish stance, holding a target at the lower end compared to Goldman Sachs and Morgan Stanley. The consensus suggests a cautious outlook towards oil, with our desk's analysis sitting at the lower bound of this spread.
Several firms, including Goldman Sachs and Morgan Stanley, are generally aligned with this bearish outlook, reflecting concerns over oversupply and waning demand. In contrast, BofA offers a more pessimistic view, anticipating a sharper decline in prices amidst increased supply.
Key currency pairs to watch are USD/CAD and AUD/USD, which are directly influenced by oil price fluctuations. Additionally, the potential for shifts in Federal Reserve policies could also intersect with commodity market dynamics as the Fed adjusts its monetary stance in response to fluctuating oil prices.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should maintain focus on the $70/bbl level for ICE Brent, which is proving crucial as it approaches significant support. Additionally, the fall in refined product inventories may present buying opportunities if market sentiment shifts positively.
Risks to this view
A reversal in the current bearish trend could occur if there are unexpected geopolitical tensions in the Middle East that disrupt flows or if refiners ramp up production considerably, disrupting current inventory improvements.
Articles The Commodities Feed: Oil under pressure amid rebound in Middle East flows 02:38 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The oil market is on target for a fourth consecutive week of declines as flows through the Strait of Hormuz increase, with ICE Brent edging closer towards $70/bbl Warren Patterson and Ewa Manthey Energy - Brent curve reflects improving supply picture The oil market is on course for its fourth consecutive week of declines as flows through the Strait of Hormuz continue to normalise. The increase in oil flows is putting growing pressure on the front end of the ICE Brent forward curve. It’s increasingly moving into contango, a sign of an oversupplied prompt market.
The return of this supply coincides with continued SPR releases. Yet with the flat price falling and the forward curve moving into contango, we could start to see more buying in the market. Refined product inventory data from Insight Global shows that total product inventories in the ARA region fell by 22kt week-on-week to 4.53mt.
These declines were driven by light ends, with gasoline and naphtha inventories falling 75kt and 26kt, respectively. Middle distillates saw some relief, with jet fuel and gasoil stocks rising by 66kt and 16kt, respectively. In Singapore, refined product stocks fell by 1.73m barrels over the week to 40.45m barrels.
While inventories remain below the 5-year average of 45.32m barrels, they recovered from the lows of 34.41m barrels in early June. Declines were seen across the barrel, with light, middle, and residual stocks falling by 665k barrels, 420k barrels, and 648k barrels, respectively. In natural gas markets, front-month Henry Hub futures in the US came under some pressure yesterday after a larger-than-expected increase in gas storage.
US gas inventories increased by 87bcf last week, above the 84bcf expected and the 5-year average of 64bcf. However, an ongoing heatwave across parts of the US will be supportive for natural gas power generation amid increased cooling demand. Metals - Aluminium under pressure after EGA update LME aluminium came under renewed pressure yesterday, with the three-month price falling towards $3,000/t as the market continued to unwind the geopolitical risk premium built up during the Middle East conflict.
Sentiment was weighed down by an update from Emirates Global Aluminium (EGA). It said that around 7% of production pots at its Al Taweelah smelter have been restarted, highlighting steady progress in restoring output following the missile and drone attacks earlier this year. The update reinforced expectations that supply disruptions in the Gulf will prove temporary.
Concerns over lost Middle Eastern production and shipping disruptions through the Strait of Hormuz helped lift prices sharply earlier this year. But recovering output and easing regional tensions have steadily improved the supply outlook. While a significant portion of Al Taweelah's capacity remains offline and a full recovery will still take time, the latest update reinforces expectations that lost supply will gradually return to the market.
This is easing concerns over aluminium availability. In precious metals, gold moved sharply higher yesterday after weaker-than-expected US jobs data eased concerns that the Federal Reserve may need to raise interest rates this year. The softer payrolls report pushed Treasury yields and the US dollar lower, improving the appeal of non-yielding assets such as gold.
The move added to gains seen earlier in the week following less-hawkish-than-expected comments from Fed Chair Kevin Warsh. Investors are increasingly reassessing the outlook for US monetary policy. The market will remain focused on incoming economic data to determine whether the recent moderation in labour market conditions continues.
This could further reduce pressure on the Fed to tighten policy and remain supportive for gold. Meanwhile, central banks returned as net gold buyers in May, adding around 41 tonnes, according to the World Gold Council. Poland remained the largest buyer, purchasing 18 tonnes and lifting year-to-date acquisitions to 64 tonnes.
China extended its buying streak to 20 consecutive months, adding 10 tonnes. Uzbekistan and Kazakhstan increased reserves by 9 tonnes and 7 tonnes, respectively. Russia, by contrast, was a net seller, reducing its holdings by 6 tonnes in May and taking year-to-date sales to 34 tonnes.
Turkey also cut its gold reserves by 3 tonnes, bringing total sales this year to 81 tonnes. Strong central bank buying continues to provide an important source of support for the gold market. Strait of Hormuz Refined product Precious metals Persian Gulf Gold Geopolitics Central banks Brent Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Warren Patterson Head of Commodities Strategy Warren Patterson is Head of Commodities strategy based in Singapore. He joined the bank in April 2016 and covers the entire commodities complex.
Previously, he worked at a commodities trade house… Ewa Manthey Commodities Strategist Ewa Manthey is a Commodities Strategist based in London. She joined the bank in September 2022 and covers the entire commodities complex, with a particular focus on the metals markets. She has… In this article Energy - Brent curve reflects improving supply picture Metals - Aluminium under pressure after EGA update
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