OIL: Oil Higher On Softer Supply Expectations & Colder Weather

Oil prices are moderately higher during APAC trading today after falling sharply on Friday. Brent is up 0.3% to $71.34/bbl after a high of $71.49, and WTI is 0.5% higher at $67.50 after rising to $67.59. The USD index is up around 0.1%.

• The outlook for both Brent and WTI is bearish. Initial support is at $69.95 and $66.32 respectively. Bear triggers are at $67.89 and $63.90.
• OPEC pushed out the planned start of its output normalisation to April at its meeting last week. Now Saudi Arabia has cut prices for shipments to Asia with the premium falling to its lowest in four years, more than expected, according to Bloomberg. It also reduced prices for Europe but not to North America. Expected excess supply in 2025 continues to weigh on prices.
• Geopolitics in the Middle East remain in focus with the Iranian- and Russian-backed Assad regime in Syria being toppled by Turkish-supported rebel groups on the weekend. The spread of instability in the region to major oil-producer Iran remains the market’s key concern. Today’s restrained rise in oil prices implies that crude is not yet too worried about the developments.
• Later November NY Fed 1-year inflation expectations print and ECB’s Cipollone and BoE’s Ramsden speak. The Fed is in its pre-meeting blackout period.

RBA-dated OIS pricing has eased by 1–3bps across 2025 meetings ahead of tomorrow’s RBA policy decision.

• A 25bps rate cut is now nearly fully priced for April, with the probability rising to 95%. However, a full rate cut is not anticipated until May.
• Market expectations for the September meeting have softened by approximately 40bps since mid-November, driven by concerns over weakening domestic economic growth. Notably, in mid-November, a full 25bps cut wasn’t expected until August, marking a significant shift toward earlier rate cuts.
• Despite the broader repricing, the probability of a rate cut at the December meeting remains low, with markets assigning only a 9% chance. 

Figure 1: RBA-Dated OIS – Today Vs. Mid-November

Source: MNI – Market News / Bloomberg

ACGBs (YM +2.0 & XM +2.0) are holding stronger after dealing in narrow ranges on a data-light Sydney session.

• The domestic focus of this week will be tomorrow’s RBA decision and Thursday’s November jobs data after October disappointed. The cash rate is unanimously forecast to remain at 4.35% and so the guidance will be monitored closely for any changes. The RBA meeting will be followed by Governor Bullock’s press conference.
• Bloomberg consensus is again forecasting a 25k increase in employment in November with the unemployment rate rising 0.1pp to 4.2%. The RBA is projecting it to rise to 4.3% in Q4 2024.
• Cash US tsys are ~1bp richer in today’s Asia-Pac session after Friday’s modest post-payrolls gains. Reminder, the Federal Reserve entered its self-imposed blackout at midnight Friday through December 19. The focus is this week's CPI and PPI inflation data on Wednesday and Thursday respectively.
• Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at +6bps.
• Swap rates are 2-3bps lower.
• The bills strip has bull-flattened, with pricing flat to +4.
• RBA-dated OIS pricing is 1-4bps softer across 2025 meetings. A 25bp rate cut is 95% priced for April. The market attaches a 9% chance of a 25bps cut tomorrow.