Crude price pressure set to persist throughout remainder of 2015

Friday, October 23, 2015

Front month crude futures continued to exhibit substantial downside pressure this week as data releases confirmed a bearish outlook for both Brent and WTI. Wednesday's release of US crude stockpiles showed a substantial weekly build as the supply glut showed no signs of letting up soon with front month WTI futures hovering around $45.50/bbl this morning. Brent futures have fared just as badly as OPEC output persists around record levels as front month prices quickly gave back gains towards $54/bbl earlier this month, with prices trading around $48.50/bbl at the time of writing. With these low prices persisting throughout 2015 it seems as if the cracks are beginning to show in oil producers' balance sheets with economists predicting that Norway could be headed into a recession and with rates already at a record low there is an increasing danger of rates hitting zero.

Market participants were upbeat yesterday as ECB president Mario Draghi hinted at the prospect of more  euro zone stimulus possibly before the end of the year. Benchmark stock indices across the region rallied strongly while short term borrowing costs dropped with the yield on 2-year German notes falling to a record low as Mr Draghi signalled that the Governing Council had discussed cutting the deposit rate further. The euro conceded more ground against the USD, pulling back 1.8% towards the end of the day and has traded around those levels this morning as the single currency finds support towards 1.111 as investors sought out riskier assets.

Three month LME aluminium prices sank to 2009 lows as the supply glut continues to pile downward pressure on the metal. Prices fell to their lowest level in six years towards $1,484.50/tonne early this morning before rebounding, on track to snap a nine session bear run. Having already fallen 20% so far there seems to be no let-up in downward price pressure as International Aluminium Association data released earlier this week showed global output continued to climb in September, rising 10% y/y with much of the growth coming from China. Market participants expect a surplus close to 1m tonnes this year and with the demand outlook struggling to improve many are braced for capacity cuts as smelters are mothballed.

Front month Brent futures struggled to hold above $50/bbl for long

CO1 Comdty Generic 1St CO Fut 2015 10 23 09 19 58

LME aluminium prices rebound back above $1,500/tonne

LMAHDS03 Comdty LME ALUMINUM 3 2015 10 23 09 20 16

Events for today

0230

CN

Oct

Property Prices

0830

DE

Oct

Markit Mfg & Services PMI

0900

EZ

Oct

Markit Mfg & Services PMI

1445

US

Oct

Markit Manufacturing PMI

LT: 

Nov  Crude WTI (NYMEX)

OE: 

Nov  Copper & Gold (COMEX)

Topics: Aluminium, ECB, LME
More from: Kash Kamal