OIL: EIA Weekly US Petroleum Summary - Week to Apr 04

The major crude oil benchmarks have traded back towards session lows as equity markets falter.

• Headlines pointing to the potential reopening of the Israel-Hamas conflict may have factored into London morning crude demand, before broader risk sentiment became a more prominent driver through the NY crossover.
• Ongoing questions surrounding Chinese demand and U.S. economic growth are also crude-negative.
• Initial support levels of note located some distance below prevailing prices at the March 5 lows ($68.33 for Brent & $65.22 for WTI), with the bearish technical theme intact in both contracts.

Goldman Sachs think “2s10s core EGBs curves will continue to steepen and forecast a move around 35bp above the forwards this year”.

• At the same time, they suggest that “higher German issuance will not only manifest as higher term premium, but upside growth risks in coming years will likely affect market perceptions of terminal rates”.
• For this reason, they think “forward rates can actually flatten, such as 2y2y vs 5y5y even as the spot curve steepens”.
• They also “continue to see swap spread tightening as offering the least compelling risk reward vs. steepeners or outright belly shorts, given the valuation constraints and global tailwinds to wider spreads, for example from potential U.S. bank regulatory changes”.

That weakness in equities provides further support to U.S. Tsys, although futures have failed to break Friday’s highs across the curve. Yields 6-10bp lower, 5s outperform, trading back below 4.00%.