In an oil and gas report sent to Rigzone late Tuesday, Macquarie strategists said they expect Brent “to grind higher until $90, or until we reach June”.
“We expect prices to be supported by geopolitical tension, which has shifted back to Russia-Ukraine, as well as a healthy debate on global balances, once again led by a wide variance on year on year U.S. production growth,” the strategists said in the report.
“If Brent reaches $90, we believe most of the upside will be factored into oil and the remaining unpriced fundamental factors, mostly supply growth related, will largely be bearish,” they added.
In the report, the strategists noted that, last week, “crude broke through its recent $10 range, partially driven by the tightening of Russian sanctions and more drone strikes on Russian refineries”.
“Price support was also provided by improving Chinese macro data which may suggest a potential improvement in secondary sector performance,” they added.
“As we enter into the peak of global turnarounds, we expect softer structure and grades before the last leg of the rally moves forward, due to global oil stock builds,” they continued.
The strategists highlighted in the report that both WTI and Brent speculative net length rose over the previous week.
“WTI net length improv[ed]… by 51.8K while Brent increased by 53.2K, combining for 105K contracts,” they said in the report.
“Notably, WTI + Brent Managed Money increased by 109K representing the largest combined move since April 2023, which followed the surprise OPEC announcement of an additional 1.16 million barrels per day of voluntary cuts,” they added.
“WTI spec net length saw an uptick driven by over 17 times new long interest than added shorts. Brent’s move was larger with new length almost nine times the amount of covered shorts,” they continued.
“Lastly, commercial participant flow decreased over the week by 72.0K contracts with Brent demonstrating the largest drop in commercial length since mid-October last year,” they went on to state.
Brent Continues Consolidation Above $85
In a separate report sent to Rigzone on Tuesday, analysts at Standard Chartered highlighted that Brent crude oil prices had “continued their consolidation above $85 per barrel”.
“The front-month contract has settled above $85 per barrel on the past eight trading days and the entire trading range has been above $85 per barrel for the past six days,” they said in the report.
“The year to date rise in crude oil prices stands at close to $10 per barrel, with the entire forward curve now higher year on year. We think the curve has further to rise, particularly at the back where we think the current $70 per barrel for the five-years out price is at least $20 per barrel too low,” they added.
“At the front of the curve, we expect Brent to move above $90 per barrel early in Q2, with our Q2 Brent average forecast unchanged at $94 per barrel,” they continued.
In the report, the Standard Chartered analysts revealed that they expect tightening fundamentals to be “the main driver of the push above $90 per barrel, with Q1’s one million barrels per day global inventory draw continuing through Q2”.
“Within Q2, while April is broadly balanced, we forecast draws of 1.55 million barrels per day in May and 1.56 million barrels per day in June,” they said.
“We think demand outperformance will play a key role in improving oil market sentiment; we expect a new all-time global oil demand high of 103.01 million barrels per day in May; a record which we expect to be broken in both June (103.62 million barrels per day) and August (104.31 million barrels per day),” they continued.
Also in the report, the Standard Chartered analysts noted that, in recent “client conversations”, they have “got the impression that macro-led gloom among investors that dominated sentiment at the start of the year is now lifting, and there also seems to be a more downbeat (and we think more realistic) view of U.S. oil supply growth among investors”.
“Money-manager positioning also suggests that a significant improvement in sentiment is already under way,” the analysts said in the report, adding that their money-manager crude oil positioning index stands at a four-year high of +33.5, “with the indices for all the main oil contracts all positive for the first time in six months”.
To contact the author, email andreas.exarheas@rigzone.com
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