Brent prices would probably already be well above the stubborn $74-$76 per barrel if not for a typically high degree of speculative shorting.
That’s what Standard Chartered analysts said in a market report sent to Rigzone at the end of July 4, adding that the latest positioning data from the Commodities Futures Trading Commission and Intercontinental Exchange show that speculative shorts in the four The main Brent and WTI contracts rose by 45.029 million barrels to a 33-month high of 273.682 million barrels in the week to June 26.
“The net money manager fell 65.647 million barrels week-over-week to a 10-year low of 177.272 million barrels and the net long hit a 14-year low as open interest share of just 3 .7 percent,” analysts said. in the report.
“Our Crude Oil Money Manager Positioning Index returned to -100.0. The index registers -100.0 whenever the money manager net as a percentage of open interest is (at least) a minimum of five years,” they added.
In the report, the analysts stated that the biggest current divergence in the commodity markets is between the speculative positioning on oil and the fundamental outlook of the main agencies and those analysts who maintain independent global balances.
“The balance sheets show, to varying degrees, a significant ongoing tightening; however, speculative positions are (on most measures) even more bearish than at the start of the pandemic,” the analysts said in the report.
“It is difficult to reconcile the two extremes, although many of the natural longs in the market seem exhausted after a long journey of investments; Meanwhile, many of the shorts may reflect bearish positions on the global economy in general rather than the oil market in particular,” they added.
“However, even taking these factors into account, the divergence remains extreme. We believe the scale of current speculative shorting is excessive in both oil and macro fundamentals, and we expect the closing of these short positions should provide some of the fuel that should take Brent decisively above $74-76 a barrel when the bullish breakout begins,” the analysts continued.
21 consecutive trading days
Analysts at Standard Chartered noted in the report that there had been 21 consecutive trading days in which Brent has been within the band of $74-76 per barrel at some point during the day.
“If the $74-76 band widens by $0.35 per barrel on either side, at least part of 44 of the last 45 trading days have been spent there,” the analysts said in the report.
Standard Chartered’s report showed that the company expects the price of Brent to average $91 per barrel this year, $98 per barrel in 2024 and $109 per barrel in 2025.
Brent is expected to average $88 per barrel in the third quarter, $93 per barrel in the fourth quarter, $92 per barrel in the first quarter of 2024, $94 per barrel in the second quarter of next year, 98 $ per barrel in the third quarter of 2024, and $106 per barrel in the fourth quarter of 2024, according to the report.
In a separate report sent to Rigzone on June 27, Standard Chartered analysts noted that the first-month Brent price had “spent at least part of the last 15 trading days in the $74-76 per barrel band.”
“Volatility has been relatively muted, with the annualized measure of 30-day Brent remaining within a range of 32 to 40 percent throughout the second quarter,” analysts said in that report.
“Trading ranges and volatility suggest a market lacking commitment in its views of flat prices, with short-term trends and low correlation between fundamental data flows and prices,” they added.
Back to the end
In a report sent to Rigzone on June 21, analysts at Standard Chartered noted that its crude oil money manager positioning index “fell to an extreme -100 over the past week, with the index of now negative positioning for all major energy contracts.” .
Speculative shorts in the four main Brent and WTI contracts rose 16.5 million barrels week-on-week to a 31-month high of 251.7 million barrels, analysts said in the report.
“Longs fell by 3.8 million barrels to 451.2 million barrels,” they added.
“Speculative net longs represent 4.2 percent of open interest, the lowest since November 2009. In our view, overextinguished speculative short is now a significant source of upside risk to the price of oil,” they continued.
“We do not believe that either the current oil fundamentals or the macro economy are weak enough to justify a 31-month high in speculative shorts and a 13-year low in the net speculative position relative to open interest,” the analysts noted in this report. .
Brent Projections
In its latest Short Term Energy Outlook (STEO), which was released in June, the EIA projected that the Brent spot price would average $79.54 a barrel this year and $83.51 a barrel in 2024. In its previous STEO, which was released in May, the EIA expected the Brent spot price to average $78.65 a barrel this year and $74.47 a barrel in 2024.
In the June STEO, the Brent spot price is forecast to average $78.83 a barrel in the second quarter of 2023, $78.32 a barrel in the third quarter, $79.97 a barrel in the fourth quarter , $81.98 a barrel in the first quarter of 2024, $83. per barrel in the second quarter, $84 per barrel in the third quarter and $85 per barrel in the fourth quarter.
In a statement sent to Rigzone last month, Enverus Intelligence Research said it continued to point to historically high global oil demand, insufficient growth in US supply and OPEC intervention as key drivers that will lead to Brent prices at $100 per barrel for the quarter. quarter Also in June, in another report sent to Rigzone, BofA Global Research revealed that it was maintaining its average forecast of $80 per barrel for Brent this year.
At the time of writing, Brent is trading at $76.34 a barrel. Brent’s highest close in 2023 so far came on January 23 at $88.19 a barrel. Its lowest close in 2023 so far was seen on June 12 at $71.84 per barrel.
To contact the author, please send an email andreas.exarcheas@rigzone.com
