© Archyde.com. Oil sentiment bearish, Standard Chartered says, but downside limited
WTI and Brent crude prices fell for a third straight session on Tuesday, with WTI now trading at its lowest level in a year. Nymex front-month crude futures for January delivery closed down 3.5% on the day at $74.25 a barrel, the lowest level in almost a year, while February Brent crude futures settled down 4% at $79.35 a barrel, at 1 The lowest closing level since March 3.It is now clear that a broader market sell-off and concerns regarding more aggressive monetary tightening by the Federal Reserve have overshadowed any positive impact from the new price caps imposed on Russian oil sales.
Oil traders have been anxiously waiting to see how the Rosneft price cap will affect the market, but the measure has yet to affect prices.
Meanwhile, Stephen Innes, managing partner at SPI Asset Management, said,Data released on Monday showed the U.S. ISM services index rose slightly to 56.5 percent in November from 54.4 percent in October, which “triggered a red flashing signal that the Fed may keep interest rates higher for longer, adding to U.S. Potential for recession and reduced energy use”. ISM surveyed procurement and supply executives of nonmanufacturing (or services) companies. The services sector report measures business activity in the overall economy, with a reading above 50 indicating growth and a reading below 5 indicating contraction.
Bearish Oil Price Sentiment
So, just how bearish has the sentiment in the oil market become? Speculative positioning in crude oil has been subdued for most of 2022, but has shifted in recent weeks, according to Standard Chartered commodity analysts.Analysts revealed that theirThe proprietary crude oil fund manager position index is currently more negative than the position index of all other commodities they track. The proprietary Crude Oil Fund Manager Positions Index compares net longs in the four major crude oil contracts in New York and London to open interest and historical norms. Standard Chartered said,In recent months, crude oil has been near the bottom of the metals and energy grades in terms of implied positive speculative appetite, while gasoline has been near the top。
The Standard Chartered Crude Oil Index is currently at -70.3, the lowest level since mid-April 2020 (regarding a week before WTI prices settled in negative). The index has lost 57.4 points over the past three weeks, its biggest three-week drop since February 2020, just before the temporary collapse of the OPEC+ deal.
Figure: Crude oil position index and Brent price (index and USD/barrel), green represents Brent price (RHS), blue represents fund manager crude oil position index (LHS)
However, Standard Chartered said the conditions this time around are very different from those during the historic slump in oil prices in 2020, which might limit the downside for oil prices. First, analysts noted thatThis time the fundamentals of the oil market are much more supportive than in early 2020, demand will not collapse due to the epidemic, and there is currently no price war among oil-producing countries.
Oil prices are affected by top-down macro trade reflows, experts sayBoth positive and negative news on the economic front sparked a sell-off. According to data from Standard Chartered Bank,Negative U.S. economic data points are triggering a sell-off in oil prices amid fears of a recession.Ironically, however, the positive data points had a similar effect due to the stronger dollar。
Also, sentiment was lifted by hopes of reopening in Asian countries, but over time,Many traders prefer to bet more on metals。
Fortunately for oil bulls, commodity experts say,Fresh shorts are relatively weak and will be offset quickly, helping to support oil prices, although the market may highlight negative effects in the short term。
Regarding the price ceiling for Russian seaborne oil, Standard Chartered predicts that it will have little impact on oil prices.Analysts pointed out that among Asian countries that mainly buy Russian oil, such as India and Turkey, none of the countries have indicated that they will consider signing an oil price ceiling agreement. Without the participation of these countries, even if Russia agreed to sell oil under these terms (which Russia has repeatedly said it would not), the amount of Russian oil that would be subject to the cap would be small.
In terms of market implications, the big question here is whether Russia can ship oil to its major consumers (including providing adequate insurance) without using EU or other G7 services. Since its invasion of Ukraine, Russia has acquired a fleet of “shadow” tankers large enough to move most of the displaced oil, according to Standard Chartered. However, analysts point out that the insurance aspect might pose major problems. That has led analysts to predict that Russian crude production might fall by 1.44 million b/d in 2023 over time due to a progressive shortage of high-quality equipment and lack of access to international service companies.
Brent Crude Continuous Daily Chart
At 14:17 on December 8, Beijing time, Brent crude oil was quoted at US$77.56/barrel in a row
