Speculative Positioning in Crude Back to March Bearish Extreme

Speculative positioning in crude oil has returned to its March bearish extreme, despite the voluntary output cuts announced by some OPEC+ members on April 2, analysts at Standard Chartered noted in a new report sent to Rigzone.

In the report, the analysts highlighted that their crude oil money-manager positioning index, which they said is based on positioning across the four main Brent and WTI contracts as a percentage of open interest relative to five-year extremes, fell 8.5 points week on week to -99.6. This is very similar to positioning at the start of the pandemic in 2020 and following the collapse of SVB, the analysts pointed out in the report.

“Speculative short positions have increased by 123.9 million barrels over the past four weeks, the largest four-week rise since November 2018, while longs have fallen by 107.9 million barrels over the same period,” the analysts stated in the report.

“We think the latest build-up in short positions significantly increases the probability of further production cuts when OPEC+ meets on June 4,” they added.

“Saudi Arabia in particular has often expressed its determination not to give speculators free rein to force an extreme price downside,” they continued.

The analysts outlined in the report that, while the fundamental outlook embedded in the speculative shorts appears to be considerably more pessimistic than those of the main forecast agencies or analyst consensus, they think “key OPEC ministers might wish to react primarily to that extreme top-down view in a bid to halt the recent rush of money to the short-side”.

Latest EIA Data

The latest Energy Information Administration (EIA) data is unlikely to improve either market sentiment or OPEC minister sentiment, the Standard Chartered analysts highlighted in the report.

“Our U.S. oil data bull-bear index fell 66.7 week on week to a highly bearish -49.7 with crude oil inventories growing by 5.65 million barrels against the five-year average,” the analysts said in the report.

“The demand indications were particularly weak, with a month-to-date fall for all product categories helping to drive our demand sub-index down 157.2 week on week to -90.6,” they added.

“There is more positioning and weekly data to come before the OPEC+ meeting which could yet change the mood, but we think the latest data has increased momentum towards a defensive cut,” the analysts continued.

Standard Chartered’s latest report shows that there have been 30 bearish, 12 bullish, and 10 neutral readings for its U.S. oil data index over the past year. A highly bearish categorization has been seen 11 times over the past year, according to the report, which highlighted that the previous reading was mildly bullish.

Petroleum Balances Concern

In a separate report sent to Rigzone last week, analysts at Macquarie Bank Limited said they remain slightly bullish on direct crude balances over the next few weeks but added that they are still concerned about global petroleum balances.

“In our view, … [the w/c May 8] price pullback was driven by U.S. economic data and the debt ceiling situation,” the analysts stated in the report.

“We anticipate a rapid increase in refining runs to tighten direct crude balances, but the total petroleum balance could soften as demand growth slows, especially in large OECD countries,” they added.

In that report, Macquarie Bank Limited highlighted that WTI+Brent speculative net length decreased by 21.6 K contracts to 127.5 K - with shorts increasing by 27.2 K, while longs increased 5.6 K - and that managed money net positioning decreased by 19.4 K to 268 K - with shorts increasing by 32.9 K contracts, while longs increased 13.5 K.

Brent MM + Other net short increased by 21.2 K contracts to - 172.1 K - with shorts increasing by 16.8 K while longs decreased 4.4 K - and Brent Managed Money net length fell by 30.7 K contracts to 113.6 K - with shorts growing by 27.9 K while longs fell 2.8 K, the report revealed.

Brent dropped from a close of $77.44 per barrel on May 9 to $74.17 per barrel on May 12, while WTI dropped from a close of $73.71 per barrel to a close of $70.04 per barrel during the same period. At the time of writing, Brent is trading at $77.55 per barrel and WTI is trading at $73.70 per barrel.

At the last OPEC and non-OPEC Ministerial Meeting, which was held on December 4, 2022, participating countries decided to hold the next OPEC+ meeting on June 4, a statement posted on OPEC’s website in December last year revealed. In April this year, a separate statement posted on the OPEC site noted that the next meeting of the Joint Ministerial Monitoring Committee (JMMC) is scheduled for June 4. The previous JMMC meeting occurred on April 3.

To contact the author, email andreas.exarheas@rigzone.com