In report sent to Rigzone on Monday, Bjarne Schieldrop, Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), highlighted the “amazing[ly] easy move for Brent crude back down to pre-war $72 per barrel”.
“It has been an amazingly rapid move for Brent crude from crisis highs to pre-war $72 per barrel,” Schieldrop pointed out in the report, outlining that Brent had moved “with ease down through 50 day moving average (DMA), 100 DMA, and 200 DMA (last week)”.
“None of the Fibonacci levels have given much resistance either,” he added.
In the report, Schieldrop noted that, “given significant oil inventory draws around the world since the start of the war, one would assume that a fair price today would be more like $80-90 per barrel than low $70s”. He outlined that this was the case, “at least while we wait for normalization in the Strait of Hormuz, [the] rebuilding [of] global oil stocks, [and] reviving crude oil production within the Persian Gulf”.
Schieldrop went on to note that, “if one assumes that the market is right at current $72 per barrel”, then possible explanations for the development could be that “one, global oil demand stays subdued for an extended period after the Middle East oil shock, or two, that non-OPEC supply is set to grow at such a pace over the coming one-two years that surplus is crushing most worries connected with the Middle East”.
The SEB analyst stated in the report that exports out of the Strait of Hormuz have likely been rising faster than crude oil import demand. He added, however, that, with Brent at $72 per barrel, demand “will likely pick up fast”.
“The oil market is a huge flow-system where spot prices are vibrating between variable supply and demand,” he said.
“Rather than being an intelligent predictor of what’s the correct price for the coming six months, the oil price may be more a display and reflection of the instantaneous state of the market,” he warned.
“And, right now, the revival of supply out of the Strait of Hormuz may be running ahead of global oil demand revival (or crude oil imports), but with Brent crude at $72 per barrel, the latter will likely pick up fast,” he added.
In a crude market commentary piece sent to Rigzone on Monday, Neil Crosby, Head of Research at Sparta Commodities, stated that the market is trying to clear a temporary spike in prompt Arabian Gulf crude that was trapped in the Strait.
He outlined that this crude was hitting the global market “just as we had covered crude needs with other sources (e.g. SPR) and with Chinese buying still extremely low”.
“Of course, physical is weaker for now and spreads are struggling,” Crosby highlighted.
“It seems … still to be a good ‘fundamental’ trade to be long physical crude and time-spreads, until we see evidence that more vessels are getting into the Strait sustainably,” Crosby added.
In a Commitment of Traders (COT) update posted on Saxo Bank’s website yesterday, Ole Hansen, the bank’s Head of Commodity Strategy, stated that, in nominal terms, the energy markets “remained the main source of liquidation as traders adjust positioning away from the biggest disruption in living memory to a near-term oversupply as a mini-tsunami of barrels are being released from the Persian Gulf”.
“The combined hedge fund net long across WTI and Brent crude oil futures fell by another 36,300 contracts to 178,800 contracts, the lowest level in six months and 68 percent below the March peak when Middle East war and closure of the Strait of Hormuz drove prices sharply higher and encouraged expectations of an increasingly tight oil market,” Hansen said in the update.
“The scale of the recent reduction in net positioning, driven not only by fundamental changes but also by a sharp deterioration in the technical outlook, has encouraged a major build-up in gross short positions in Brent to near record levels,” he added.
Hansen pointed out in the update that Saxo Bank’s weekly COT update highlights futures positions and changes made by hedge funds across forex and commodities during the week ending June 23. The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil, Hansen noted.
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