Oil Prices Mount Significant Break to Upside - Rigzone News

Oil Prices Mount Significant Break to Upside | Rigzone

Oil Prices Mount Significant Break to Upside

After a rangebound second quarter, oil prices have mounted a significant break to the upside.

That’s what analysts at Standard Chartered stated in a report sent to Rigzone on July 25, adding that Brent settled at a three-month high of $82.74 per barrel on July 24, which they noted was $4.24 per barrel higher week on week.

“This is the first time it has settled above the key 200-day moving average since August 2022,” the analysts said in the report.

“In our view the rise in prices is a belated market acknowledgment of a significant tightening. We expect a seasonal increase in demand to combine with producer output restraint to create large supply deficits over the next two months,” they added.

In the report, the Standard Chartered analysts noted that their supply and demand model projects supply deficits of 2.81 million barrels per day in August and 2.43 million barrels per day in September, “with further deficits of above two million barrels per day in November and December and again in February 2024”.

The analysts projected in the report that global inventories will fall by 310 million barrels per day by end-2023 and by a further 94 million barrels per day in the first quarter of next year, “keeping oil markets backwardated and pulling prices higher”.

“Our average Brent price forecasts are unchanged at $88 per barrel for Q3 and $93 per barrel for Q4,” the analysts stated in the report.

“We expect demand to reach an all-time high in August and then set new highs in December 2023, and February, March, June, and August 2024,” they added.

“Our model shows global demand falling to a seasonal low of 99.33 million barrels per day in January 2024. This is the final time this decade we expect monthly average demand to be below 100 million barrels per day,” the analysts continued.

In its latest report, Standard Chartered revealed that its crude oil money-manager positioning index had risen 2.2 points week on week to -44.5. In a previous report sent to Rigzone on July 18, Standard Chartered noted that its crude oil money-manager positioning index rose by 30.6 week on week to a 12-week high of -46.7.

“Speculative positioning in crude oil has moved further away from its recent extreme bearishness,” Standard Chartered analysts stated in that report.

“Speculative shorts across the four main Brent and WTI contracts fell 39.9 million barrels to 187.9 million barrels, while speculative longs rose 50.0 million barrels to 513.3 million barrels,” they added.

“Positioning indices also indicated less bearishness in heating oil (rise of 11.5 to +30.9), gasoil (rise of 26.0 to -22.8), and gasoline (rise of 22.2 to -1.9),” the analysts continued.

Short Term Bullish

In a separate report sent to Rigzone last week, Macquarie strategists said they remain short term bullish through the third quarter of 2023 “as OPEC+ cuts and increased runs, both of which have started slowly, should tighten balances”.

“Both supply and demand helped oil price action last week [week commencing July 10]. On the demand side, the U.S. posted an acceleration in runs with throughput rising by 629,000 barrels per day,” the strategists added.

“Supply tightness came via a short disruption in Libya and a small production outage in Nigeria. Following the current rally, we anticipate a price correction in 4Q23/1Q24 as a result of sweet production growth in the U.S. and N. Sea, waning OPEC+ compliance, and slowing demand growth due to recessionary impacts,” they continued.

In their report, the Macquarie strategists noted that the July 3 announcement of additional August OPEC+ cuts “overshadowed the economic macro releases for this CFTC report period”.

“For the week ending in July 11, exposure among speculators increased by a 62.1K contracts for Brent and WTI combined,” the strategists said in the report.

“The shift was driven by an increase in longs and a decrease in shorts as the market settled above both the 50D and 100D moving averages. The release of the hawkish FOMC meeting minutes and lower than expected Chinese CPI, PPI and PMI prints failed to materially soften price action,” they added.

“Both WTI and Brent built managed money and other net length over the last week with WTI rising by 29.0K and Brent increasing by 33.1K,” the Macquarie strategists continued.

“WTI speculator length maintained its upward trajectory led by an increase in long positioning with a long/short ratio move of 2.11 to 2.27. Brent demonstrated a sizeable increase in longs as well with a long/short ratio going from 0.74 to 0.81,” the strategists went on to note.

At the time of writing, Brent is trading at $83.80 per barrel and WTI is trading at $79.67 per barrel. Both commodities have been on an upward trajectory since the end of June.

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

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Andreas ExarheasEditor | Rigzone

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