Hedge funds and Commodity Buying and selling Advisors (CTAs) decreased their longs throughout the 4 major Brent and WTI contracts by 64.7 million barrels week on week to a 12-year low of 395.2 million barrels, bringing the cumulative liquidation over the previous three weeks to 200 million barrels.
That’s what analysts at Commonplace Chartered Financial institution, together with Commodities Analysis Head Paul Horsnell, mentioned in a report despatched to Rigzone late Tuesday by Horsnell, including that “that is an all time file, exceeding the 194 million barrels of liquidation over three weeks in the beginning of the 2020 pandemic”.
“Speculative shorts elevated by 34.2 million barrels week on week to 243.1 million barrels, with the online speculative lengthy falling 98.9 million barrels week on week to 152.2 million barrels; the online lengthy has solely been decrease in a single week over the previous 12 years,” the analysts added.
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“Our crude oil cash supervisor positioning index fell 35.4 week on week to -89.2 with crude oil, heating oil, and gasoline all now at, or near, most speculative bearishness,” they continued.
“Lengthy-short ratios additionally fell sharply with the ratio for the ICE Brent contract falling 0.4 week on week to 1.1, which is the bottom studying since comparable information begins in 2011,” the analysts went on to state.
Within the report, the Commonplace Chartered analysts mentioned they assume an overextension of macro-led speculative shorts laid the premise for the sharp rally in costs over the previous week.
“Entrance-month Brent settled at $82.30 per barrel on 12 August, per week on week enhance of $6.00 per barrel, whereas front-month WTI rose $7.12 per barrel week on week to $80.06 per barrel,” they added.
“Volatility has adopted costs increased, with realized annualized 30-day Brent volatility rising 5.2 share factors week on week to a six-month excessive of 27.7 p.c. Whereas volatility remains to be within the decrease half of its 10-year distribution, it’s now within the fortieth percentile having spent a lot of July within the decrease 5 p.c tail,” they continued.
The analysts famous within the report that the default media rationalization when costs rally so quick is a geopolitical premium.
“This tends to be an ex-post rationalization and isn’t very illuminating; costs fall and reviews say the geopolitical premium has eased, costs rise and reviews say the geopolitical premium has elevated,” they mentioned.
“We discover the entire idea of a geopolitical premium unsatisfactory. It successfully entails a comparability with a counterfactual universe the place particular real-life occasions will not be taking place,” they added.
“Nonetheless, the geopolitical context does matter in that a rise in uncertainty often makes it more durable to maintain a brief place and it’s potential that mounting concern in regards to the potential for an expanded Center East battle might have performed a task in sustaining the newest short-covering rally,” the analysts continued.
The Commonplace Chartered analysts said, nevertheless, that they haven’t seen any vital flows into the lengthy facet of the market which were motivated by taking a place on present Center East dynamics.
In an oil and gasoline report despatched to Rigzone on August 12, Macquarie strategists famous that each WTI and Brent speculative web size fell over the previous week.
“WTI web size decreased 30.8K whereas Brent dropp[ed]… by 30.3K. WTI spec web size shrunk with over 4 instances the liquidation of longs as new quick curiosity,” the strategists mentioned within the report.
“Brent recorded a smaller transfer with the lengthy quick ratio lowering from 0.79 to 0.73 because the drop in longs exceeded the rise in shorts,” they added.
The strategists warned within the report that crude positioning is changing into more and more bearish with managed cash net-length in ICE Brent at its lowest because the statistic started in 2011.
“General managed cash web size between WTI and Brent is on the lowest degree since June with longs final seen at this degree in December 2012,” they mentioned within the report.
“The latest speculator liquidation has continued via elevated Center East stress between Israel, Iran, and Hezbollah and seasonally tightening bodily crude market,” they added.
“Refined product capital flows have largely mirrored crude’s flows with NYMEX RBOB speculator web size at its lowest degree since January 2007,” the strategists went on to notice.
The Macquarie strategists highlighted within the report that, final week, the oil value “recovered from January degree lows after the sell-off presumably entered oversold territory”.
“Though we turned bearish a number of weeks in the past, the correction appeared forward of schedule to us. Over the following few weeks, we anticipate additional help from stock attracts forward of fall turnarounds (T/A),” they added.
“Finally, we anticipate correction in 4Q24 as provide/demand surpluses enhance. These surpluses are pushed by accelerating U.S. provide development, the partial return of OPEC+ barrels, softening distillate demand and a bigger than regular refining T/A season,” they continued.
To contact the creator, electronic mail andreas.exarheas@rigzone.com
