Oil was caught by the technical pull of a chart gap that opened between a March 31 high and an April 3 low due to the announcement of voluntary production cuts by of some signatories of the OPEC+ agreement on April 2.
That’s what analysts at Standard Chartered explained in a report sent to Rigzone on Tuesday afternoon, adding that “with little engagement across asset markets on most of the key top-level views on economies, currencies and rates, and with no fundamental issue dominating the oil trader’s short-term sentiment, the gap on the charts seems almost by default to have become a dominant feature.”
In the report, analysts noted that, in Brent, the gap was between $79.80 per barrel and $83.50 per barrel.
“The market has spent the previous three consecutive trading days moving in the gap, as well as a fourth day at the time of writing, with only $0.55 per barrel of the gap currently unfilled,” the analysts said in the April 25 report.
Analysts noted in the report that the gap “is, of course, an artificial feature, as it is only the result of production cuts being announced on a Sunday rather than a trading day.” They added in the report that the timing of the announcement makes no fundamental difference.
“Instead, we believe the recent dominance of the short-term sentiment gap is simply a measure of the market’s lack of commitment to any view beyond short-term technical indicators and option expirations,” they said analysts in the report.
“This is perhaps the symptom of a market that, at least for the moment, has run out of persuasive ideas and does not have the patience to wait for the fundamentals to change,” they add.
“It seems almost as if traders are simply marking the potential dead time between the announcement of cuts (April 2), the implementation of the cuts (May 1) and the likely tightening of balances (June and Q3) ” analysts continued. declare
Standard Chartered’s monthly supply and demand balances show an overall surplus of 1.83 million bpd in April, shrinking to a surplus of 403,000 bpd in May, turning into a deficit of 1.26 million barrels per day in June, analysts said in the report.
“Our model shows shortfalls throughout the third quarter, with the largest of 1.56 million barrels per day in August,” the analysts said in the report.
“We expect these shortfalls to wipe out the accumulated surpluses that have accumulated between October 2022 and April 2023. The tightening represents a 3.09 million bpd variation between the April surplus and deficit of June, and should be large enough to create a base for some traders to return to a more fundamental view,” the analysts added.
“However, given the weakness in oil trading over the past year, we see very few traders willing to get too far ahead of any tightening, at least until there are physical manifestations or a more positive and engaged trading environment among risk assets”. analysts warned.
In a separate report sent to Rigzone on April 21, analysts at Standard Chartered noted that oil prices lost upward momentum following the April 2 announcement of voluntary production cuts by of some OPEC+ signatories.
“From a technical point of view, this has resulted in a number of surprising features,” the analysts said in this report.
“After the initial jump higher, prices remained within the April 3 range for five consecutive days, and April 6 was an extremely rare triple inside day (a third consecutive day with a range within the previous day’s range),” the analysts added.
“After a failed breakout to the upside, prices fell below the April 3 low on April 18, and have since tried to close the gap on the chart. Momentum indicators are also ‘have turned bearish, with six consecutive lower daily highs,’ the analysts continued.
In its latest report, Standard Chartered forecasts the price of Brent to reach $91 a barrel this year, $98 a barrel in 2024 and $109 a barrel in 2025. The company expects the commodity to reach an average of 88 dollars a barrel in the third quarter of this year. , $93 per barrel in the fourth quarter, $92 per barrel in the first quarter of 2024, $94 per barrel in the second quarter of 2024 and $98 per barrel in the third quarter of 2024, the report shows.
In a separate report sent to Rigzone this week, BofA Global Research highlighted that it had a forecast of $88 per barrel for Brent by 2023.
According to its latest Short-Term Energy Outlook (STEO), which was released on April 11, the US Energy Information Administration (EIA) sees Brent spot prices at $85.01 a barrel this year and $81.21 per barrel in 2024.
The EIA forecasts Brent spot prices to reach $87 a barrel in the third quarter of 2023, $86 a barrel in the fourth quarter, $85 a barrel in the first quarter of next year, $82 a barrel in the second quarter of 2024 and $80 per barrel in the third quarter of 2024, the STEO shows.
To contact the author, please send an email andreas.exarcheas@rigzone.com
