Faced with a relief bounce after a torrid week of losses, the oil complex enjoyed a Friday that clawed back some of the worst excesses of the sell off, leaving the big ticket numbers of $80 in Brent and $75 in WTI intact. The week-on-week performances registered the following losses; WTI -$3.34/barrel, Brent -$3.46/barrel, RBOB remained inert with a small loss of 1.15/c per gallon but the distillate contracts bore much of the market’s woe as refiner margin unwound and seasonality length started to rethink. Heating Oil was 18.07c/gallon down and Gasoil a whopping $73.75/tonne due to the many stories of decreased diesel demand in Europe exacerbated by topped out natural gas stocks.

Consolidation is a fine word for markets and can cover all manner of ills, its use in the latest hiatus of price movement is deployed to cover up another week of ‘influencers’ which does not refer to advertisements from pool-side, Dubai. Price predictions will be aplenty as today OPEC will publish its Monthly Oil Market Report, closely followed by the IEA’s Oil Market Report tomorrow and hiding behind these is 2-weeks’ worth of EIA Inventory Report data being that last week’s was postponed due to a systems upgrade. Goldman Sachs are pre-emptive this morning and although it lowers its call for Brent next year to $92/barrel, it continues in uber-bull mode insisting that 2024 will be a good year for commodities. 

Still, as much as bulls appeal to consolidation as a call for a bottoming, oil remains downcast this morning due in part to what seems to be a breakthrough in the deadlock between Turkey and Iraq over the shut-in of pipeline supplies to Ceyhan. There has been a series of false dawns on when oil outflows from the KRG will resume but, and according to Reuters, Iraq’s Oil Minister Hayan Abdel-Ghani expects production from Kurdish fields to resume in the coming days which could add up to another 450,000 barrels per day to the market. Iraq have been unreliable in information as seen on Friday when insisting that it will part of an OPEC+ committed to price stability, while reporting increase exports from its southern fields. However, to cock a snoot at the resumption of a possible 450,000 barrels per day through Turkey is dangerous, for it is potentially a very large amount of oil coming to market in a depressed demand scenario. Production from Africa is about to boost too, according to Reuters, after Nigeria’s NNPC announced an end to industrial action and resumption of 275,000 barrels per day at its joint venture with TotalEnergies.

This regression in demand was apparent last week as the EIA, with an eye on US Gasoline consumption, predicted the world’s largest economy’s consumption to reduce by 300,000 barrels per day, and although not a huge amount it comes at the same time as poor economic markers from China leave little in imagination that demand from Asia’s powerhouse in 2024 will be at best, lacklustre. We are at the back end of the fund index rolls which have had an adverse effect on the state of backwardation but it would be misleading to suggest that the entirety of the blame lies with the movement of monies. Brent, of late, is where oil sentiment has been largely expressed due to its international standing and geography to the Middle East, but even the marker crude is unconvinced in positioning. Money managers reduced their net-length in Brent crude oil futures and options by 24,245 contracts to 176,038 in the week ending November 7, with longs only down 20,576 and shorts up 3,669, according to ICE, which in a market with such a move lower adds to the confusion because of the paltry change. Quite the Monday morning then with much to chew over and we haven’t even once mentioned the wider suite and the looming inflation data that is about to blanket all thinking.

There is no escaping interest rates

At the announcement of a Federal Reserve hiatus in hikes at the November 1st meeting, the subsequent press conference by Chair Jerome Powell saw mixed language but appeared to debunk the idea of a dot plot to higher rates or even lower ones, seemed to pull back on his history of  insistence that employment and wages were a major cause of concern and did not dismiss remarks that bond yields were doing much of the work for the FED in its intent of quantitative tightening. A seemingly guarded man by nature, and this was no means a dovish overture, Mr Powell must have been extremely surprised at the fervour in which the nascent buying came back into bourses including the recent 8-day straight rallies in the S&P 500. Which is why last week, there was a choreographed pushback against the market’s dovish interpretation of the FOMC decisions and its ensuing transcribes.
Markets were softened up with some hawk-speak before Powell addressed an IMF panel on Thursday and he was indisputably prosaic, stating ‘the FOMC is committed to a 2% inflation target as we know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes. If it becomes appropriate to tighten policy further, we will not hesitate to do so.’ The following day in an event organised by the Financial Times, the ECB President Christine Lagarde was very much on script by rallying behind the call of ‘caution’ and that any interest rate cut would not happen for a least a couple of quarters and hid behind the favoured ‘higher for longer’ mantra. This was preceded in the week by Bundesbank President Joachim Nagel and Bank of France Governor Francois Villeroy de Galhau holding hands in accompaniment to very similar messages. This transatlantic shoulder-to-shoulder showing is in anticipation of what inflation data will bring to the Old and New World in the coming days.

In the early part of this week there will be inflation data released from India, Sweden, Spain, UK, France, and Italy to name a few and these might just be the harbingers of the following-on important ones which will be eagerly awaited by not only the investment community hordes, but by those that oversee our nations monies as outlined above. On Tuesday the US CPI is due at 13.30 GMT and is predicted to register 4.1% for October year-on-year, unchanged against September. Following on from that and Friday, the Eurozone CPI is due at 10.00 GMT and is expected at 4.2% for October year-on-year, against September’s 4.5%.

The unfortunate truth to this awaiting of inflation data this week is that until published, they might just have a stupefying effect on US Dollar denominated commodity prices such as oil. Added to this is that oil will ultimately feel the full force of inflation reaction. If inflation sees marked decreases, then questions of demand will come to the fore. If alternatively increases are notched, then notions of higher interest rates will confound bulls’ thinking. Further to comments last week Lagarde, through the prism of the Middle East conflict, said ‘we have to be really monitoring the price of energy going forward’, but this is equally true no matter what the driver might be. 

Whatever the data reveal concerning prices paid around the world, it will not show a defining path of clarity, just another corner in the maze. As we discussed on Friday, equities are outperforming oil and if there remains friendly nascence after another fraught week, that is where it will be found.
 

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