In a report sent to Rigzone late Tuesday, Macquarie strategists said they maintain the view that Brent will remain rangebound between $80 - $90 through the second quarter of this year.
After this, the strategists noted in the report that they “expect oil will become bearish as a result of NOPEC supply growth, decreasing OPEC+ space capacity, and softer than anticipated demand due to persistent inflation”.
“However, we recognize that rising runs will tighten crude balances through August before large petroleum surpluses become apparent,” the strategists added.
In the report, the strategists highlighted that, over the past two weeks, the crude price has traded in approximately a $3 range.
“After the sell-off at the beginning of May, price appears to have found a floor supported by the 100D moving average,” the strategists said in the report.
“Even though flat price has been stuck in a tight range, the Brent market has loosened alongside a substantial decrease in managed money net length. From 5/2 to 5/13, the spread between Dated and ICE Brent has shifted from 0.25 to (1.25), decreasing by $1.50 per barrel and indicating a decrease in Brent market physical tightness,” they added.
“Furthermore, this potential loosening is apparent in North Sea (BFOET) floating volumes hitting their highest level since December 2021. For the week ending on May 7, WTI + Brent Managed Money net length decreased by 111.4k contracts, which is the largest combined week on week drop since March 2023,” they continued.
The strategists also pointed out in the report that both WTI and Brent speculative net length fell over the prior week.
“WTI net length decreas[ed]… by 47.5K while Brent fell by 29.9K. WTI spec net length shifted lower driven by the liquidation of longs exceeding new short interest,” they added.
“Brent recorded a smaller decrease with over three times the amount of long liquidation than short covering. Lastly, commercial participants improved length for both WTI and Brent summing to 37K contracts,” they went on to state.
In a separate report sent to Rigzone late Tuesday, analysts at Standard Chartered Bank said the oil market has moved sideways during May, “with the $83.45- 83.60 per barrel band for front-month Brent fully contained within the intra-day range for all 10 trading days in May so far”.
“The contract settled at $83.36 per barrel on 13 May, a week on week increase of $0.03 per barrel. After briefly showing its head above 21 percent at the start of May, 30-day realized Brent volatility has been dragged lower again by the recent sideways move; it stood at 19.0 percent at settlement on 13 May, a week on week decline of 1.1 percentage point,” they added.
The Standard Chartered analysts noted in the report that money-managers “have moved sharply towards the short side in oil, according to the latest Intercontinental Exchange (ICE) and Commodity Futures Trading Commission (CFTC) positioning data”.
“Our crude oil money-manager positioning index fell 37.3 week on week to -30.3 , its largest week on week fall since early October 2023 and the third-largest fall in the past three years,” they said.
“The combined net selling across the four main Brent and WTI futures contracts was 111.6 million barrels. Money-manager positions do not look over-extended in Brent, with our positioning index for ICE Brent at a neutral +2.9, which is lower 26.0 week on week,” they added in the report.
“However, positions look more extended in WTI; our NYMEX WTI positioning index fell 39.1 week on week to -39.1 and our ICE WTI positioning index rose 1.1 week on week to -87.6,” they continued.
The analysts highlighted in the report that SCORPIO, their machine-learning oil price model, had indicated a May 13 settlement of $82.18 per barrel.
“While just $0.08 per barrel below the 13 May intra-day low, this was $1.15 per barrel below the settlement price,” they added.
“This week SCORPIO indicates a week on week increase of $1.41 per barrel to a 20 May settlement of $84.77 per barrel,” they continued.
Standard Chartered Bank projected in the report that the nearby future ICE Brent price will average $98 per barrel in the third quarter and $106 per barrel in the fourth quarter of this year. It forecast that the nearby future NYMEX WTI basis price will average $95 per barrel in the third quarter and $103 per barrel in the fourth quarter.
To contact the author, email andreas.exarheas@rigzone.com
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