Oil Strategists Remain Bearish
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas
In an oil and gas report sent to Rigzone this week, Macquarie strategists noted that they remain bearish.
“Despite justified focus on supply risks, rising macro concerns are becoming larger factors in oil views and positioning among oil generalists and specialists,” the strategists stated in the report.
“We remain bearish but recognize upside risks associated with the Middle East conflict. We do not expect a supply disruption without material escalation,” they added.
“We have not been of the view that full conflict resolution was needed for risk premium to bleed out, but we are still surprised at the rate of the pull back,” they continued.
At the rate oil is retracing the third quarter’s upward price action, valuation may end up attractive soon, the strategists said in the report.
“Additional drivers of a price correction could be sweet production growth in the U.S., North Sea, and Brazil paired with waning OPEC+ compliance, which perhaps started in September,” they added.
“Physical indicators including sweet grades are consistent with the weak price action,” they continued.
In the report, the strategists noted that both WTI and Brent speculative length fell over the last week. Brent decreased by 5.4K and WTI fell by 3.5K, the report highlighted.
“Compared to most recent data, the previous data release saw larger positioning changes,” the strategists stated in the report.
“Two weeks ago, Brent MM saw a substantial build of 71.2K following a 62.3K decrease from the previous week, showing a shift in sentiment as longs increased by over quadruple the amount shorts fell,” they added.
“For the same period, WTI managed money liquidation almost doubled new short interest. Lastly, commercial participants expressed opposing changes in positioning as well with Brent decreasing by 69K and WTI rising by 51K, WTI commercial had the largest drop in shorts since November 2022,” they went on to state.
In a separate oil and gas report sent to Rigzone late last week, Macquarie strategists revealed that they remained bearish “despite Middle East risks”.
“We remain bearish but recognize the upside potential associated with the Middle East conflict, but we do not expect a supply disruption in the absence of substantial escalation,” the strategists said in that report.
“Prior to October 7, OPEC+ voluntary cuts, global crude draws, and low Cushing stocks supported crude before tighter monetary policy, demand concerns, and softer cracks reversed 3Q gains. Over that same period, spec length increased continuously for WTI,” the strategists added in that report.
“Looking forward, we anticipate a price correction due to sweet supply growth in the U.S., North Sea, and Brazil (Med), plus OPEC+ non-compliance, which potentially commenced in September,” they continued.
In the previous report, Macquarie strategists highlighted that, from September 1 to October 6, the sour market weakened “with light-heavy diffs widening by $0.75 per barrel”.
“Over the same period, Dated vs ICE Brent has signaled physical tightness, increasing by $2.60 per barrel, going from $0.94 on September 1 to $3.54 on October 6, and peaking at $5.87 per barrel on October 4,” they added.
“Post October 7, Dated diffs ranged from $3.22 on October 9 to ($1.19) on October 25, suggesting the market is more concerned about real-time oversupply than Middle East risk,” the strategists continued.
“In the past two weeks, WAF diffs weakened substantially, falling by $0.55 to $1.30, reflecting reduced interest in those grades at high premiums despite their distillate yield,” they went on to state.
Also in that report, Macquarie strategists outlined that strength in the east weakened with higher prices and highlighted that macro concerns were countering risk premium upside.
“Recent U.S. data, including the Preliminary October Manufacturing PMI, job market statistics, CPI, and 3Q GDP have all beat expectations and reinforced the view that the Federal Reserve will hold rates higher for longer,” the strategists said in the report.
“In Europe, the manufacturing and industrial sectors continue to contract with Preliminary October PMI at 43, below consensus. Lastly, China’s data has been mixed with 3Q GDP increasing to 4.9 percent year on year, but September data still pointing to sluggish consumer demand as deflation persists,” they added.
“Current macro concerns appear to be limiting the upside associated with the Middle East conflict,” the strategists went on to state.
In a separate oil and gas report sent to Rigzone on October 19, Macquarie strategists revealed that they were bearish on price, but acknowledged that “upside risk associated with the current conflict in the Middle East that could take Brent to $98 using roughly $1.40 per barrel of price movement per 100,000 barrels per day at risk”.
“That said, we do not anticipate a disruption to physical flows barring escalation,” the strategists noted in that report.
“As a result, we expect a price correction once the market is comfortable that supply may not be disrupted. Importantly we do not believe full conflict resolution is needed for the supply risk premium to bleed out, much like Russia-Ukraine,” they added in the report.
In a report sent to Rigzone on October 24, analysts at Standard Chartered stated that Brent volatility has risen to a five-month high.
“The 30-trading day annualized realized measure gained 0.9 percentage points week on week to 37.1 percent on 23 October, taking the increase over the past four weeks to 24.3 percentage points,” the analysts said in that report.
“Trade remains headline-driven with fundamental tightness receiving relatively little attention,” they added.
“We think it is possible to argue that the current dominance of Middle East headline trading has led to lower prices by distracting the market from both falling inventories and from producer policies aimed at achieving a soft landing for the market at higher price levels,” they continued.
“In other words, the recent tendency towards higher prices with lower volatility has been replaced by a downwards drift with higher volatility,” they went on to state.
In a report sent to Rigzone on October 23, Skandinaviska Enskilda Banken AB (SEB) Chief Commodity Analyst Bjarne Schieldrop said, “no one knows the consequences of what a ground invasion of Gaza by Israel may bring, except that it will be very, very bad for Palestinians, for Middle East politics, for geopolitics and potentially destabilizing for global oil markets”.
“As of yet the oil market seems to struggle with how to price the situation with fairly little risk premium priced in at the moment as far as we can see,” he added in the report.
“Global financial markets however seems to have a clearer bearish take on this. Though rallying U.S. rates and struggling Chinese property market may be part of that,” Schieldrop continued.
In its latest oil market report, which was released earlier this month, the International Energy Agency (IEA) noted that evidence of demand destruction is appearing “with preliminary September data showing that U.S. gasoline consumption fell to two-decade lows”.
“Buoyant demand growth in China, India and Brazil, nevertheless underpins an increase of 2.3 million barrels per day to 101.9 million barrels per day in 2023, of which China accounts for 77 percent,” the IEA added in its October OMR.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas