In a report sent to Rigzone by Standard Chartered Bank Commodities Research Head Paul Horsnell late Tuesday, analysts at the bank, including Horsnell, noted that, in their view, “the most important current feature of the oil market is positioning”.
“Money managers have added a significant amount of length to the market in recent weeks,” the analysts said in the report.
“In the latest week’s data, our crude oil money-manager positioning index rose 19.7 to a six-year high of +41.3, with longs across the four main Brent and WTI contracts increasing by 43.8 million barrels week on week to 677.7 million barrels,” they added.
“Shorts also increased, adding 11.8 million barrels to 192.3 million barrels. The net long has increased by 339.8 million barrels since the end of October, which is an average rate of 4.4 million barrels per day,” they continued.
The Standard Chartered Bank analysts stated in the report that the rapid rate of increase in the net long over the past two months has seemed out of kilter with the fundamental views of most of the largest funds.
“While beginning to accept that the 2025 outlook was not as grim as previously thought, they have not yet switched to a belief that the market will tighten significantly,” the analysts said in the report.
“This suggests to us that a lot of the new length is short-term tactical and would need a constant flow of positive news to retain its enthusiasm,” they added.
“Combine periods of general risk-off sentiment with greater uncertainty, including an increased flow of both positive and negative news, and the likelihood is that a significant amount of the recent length might prove to have limited commitment and be quick to close out,” the analysts continued.
In the report, the Standard Chartered analysts went on to note that “the installation of the new U.S. administration is a definitive watershed event in terms of market uncertainty” in their view, “and exactly the circumstances under in which some of the softer fund length is likely to be washed out of the crude oil market”.
“Some key moving averages (MAs) lie close to current prices, particularly the 200-day MA for the continuous front-month Brent contract ($78.74 per barrel), increasing the potential for greater post-inauguration price volatility,” they said.
“However, once the initial wave of administration change headlines subsides, we think the path of least resistance will be cautiously higher,” the analysts added.
The Standard Chartered Bank report showed that the company sees the ICE Brent nearby future crude oil price averaging $82 per barrel in the first quarter of 2025, $84 per barrel in the second quarter, $89 per barrel in the third quarter, and $93 per barrel in the fourth quarter.
A BofA Global Research report sent to Rigzone on Wednesday stated that the oil market has tightened this winter, “aided by low crude oil inventories, increased heating demand, improved OPEC+ compliance, and more Russia sanctions”.
“Front month Brent crude oil prices spiked above $81 per barrel last week as these factors coalesced, but the move in long dated prices (60m Brent) has been more muted, with prices just shy of $69 per barrel,” the report added.
In a market analysis sent to Rigzone on Wednesday, Dilin Wu, Research Strategist at Pepperstone, highlighted that the oil market was “facing strong selling pressure, with Brent crude futures closing lower for four consecutive trading days, now dropping below $80”.
Wu went on to note in that analysis that “the reaction of Brent futures around the 200-day moving average and near the $75.8 level will be worth monitoring”.
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