Brent Would Likely Be Well Above $74-76 Band Were It Not for This Factor - Rigzone News

Brent Would Likely Be Well Above $74-76 Band Were It Not for This Factor | Rigzone

Brent Would Likely Be Well Above $74-76 Band Were It Not for This Factor

Brent prices would likely already be well above the stubborn $74-76 per barrel band were it not for an usually high degree of speculative shorting.

That’s what analysts at Standard Chartered stated in a market report sent to Rigzone late on July 4, adding that the latest Commodities Futures Trading Commission and Intercontinental Exchange positioning data shows that speculative shorts across the four 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 26 June.

“The net money-manager long fell by 65.647 million barrels week on week to a 10-year low of 177.272 million barrels and the net long reached a 14-year low as a share of open interest of just 3.7 percent,” the 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 long as a percentage of open interest is at (at least) a five-year low,” they added.

In the report, the analysts stated that the largest current divergence across commodity markets is that between speculative positioning in oil and the fundamental outlook of the main agencies and those analysts who maintain independent global balances.

“The balances show, to differing degrees, a significant tightening in progress; yet speculative positions manifest (on most measures) even more bearishness than at the start of the pandemic,” the analysts said in the report.

“It is hard to reconcile the two extremes, although many of the natural longs in the market seem to be exhausted after a long run of reverses; meanwhile, many of the shorts may be reflecting positions that are bearish about global economics in general rather than the oil market in particular,” they added.

“However, even allowing for these factors the divergence remains extreme. We think the scale of current speculative shorting is excessive in terms of both oil and macro fundamentals, and we expect the closing of those short positions to provide part of the fuel that should take Brent decisively above $74- 76 per barrel when the upside break begins,” the analysts continued.

21 Consecutive Trading Days

The Standard Chartered analysts highlighted in the report that there had been 21 consecutive trading days in which Brent has been within the $74-76 per barrel band at some point during the day.

“If the $74-76 band is widened by $0.35 per barrel on each side, at least part of 44 of the past 45 trading days has been spent inside it,” the analysts said in the report.

The Standard Chartered report showed that the company projects that the Brent price will 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, analysts at Standard Chartered highlighted that the price of front-month Brent had “spent at least part of the past 15 trading days in the $74-76 per barrel band”.

“Volatility has been relatively muted, with the 30-day realized annualized Brent measure staying within a 32-40 percent range throughout Q2,” the analysts said in that report.

“Trading ranges and volatility both suggest a market lacking commitment in its flat price views, with short-lived trends and a low correlation between fundamental data flows and prices,” they added.

Back to an Extreme

In a report sent to Rigzone on June 21, analysts at Standard Chartered noted that their crude oil money-manager positioning index “fell back to an extreme -100 over the past week, with the positioning index now negative for all the main energy contracts”.

Speculative shorts across the four main Brent and WTI contracts rose by 16.5 million barrels week on week to a 31-month high of 251.7 million barrels, the analysts stated in that report.

“Longs fell by 3.8 million barrels to 451.2 million barrels,” they added.

“The speculative net long represents 4.2 percent of open interest, the lowest since November 2009. In our view, overextended speculative shorting is now a significant source of upside oil price risk,” they continued.

“We do not think that either current oil fundamentals or macroeconomics are weak enough to justify a 31-month high in speculative shorts and a 13-year low in net speculative positioning relative to open interest,” the analysts went on to note in that 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 per barrel this year and $83.51 per barrel in 2024. In its previous STEO, which was released in May, the EIA expected the Brent spot price to average $78.65 per barrel this year and $74.47 per barrel in 2024.

In the June STEO, the Brent spot price is anticipated to average $78.83 per barrel in the second quarter of 2023, $78.32 per barrel in the third quarter, $79.97 per barrel in the fourth quarter, $81.98 per 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 all-time high global oil demand, insufficient North American supply growth, and OPEC intervention as key drivers that will push Brent prices to $100 per barrel in the fourth quarter. Also in June, in another report sent to Rigzone, BofA Global Research revealed that it was maintaining its average $80 per barrel Brent forecast for this year.

At the time of writing, the price of Brent is trading at $76.34 per barrel. Brent’s highest close in 2023, so far, came on January 23, at $88.19 per barrel. Its lowest close in 2023, so far, was seen on June 12, at $71.84 per barrel.

To contact the author, email andreas.exarheas@rigzone.com

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