Analysts Explain Plunge in Oil Positioning Index

Standard Chartered’s crude oil positioning index has fallen for four consecutive weeks, according to a new report from the company, but its analysts think very little of the fall is due to the active opening of new short positions, the report revealed.

“It is primarily due to the closing out of existing longs,” Standard Chartered analysts stated in the report.  

“It does not appear to us that speculators have been adopting a new and far more bearish narrative or specific negative views about oil market fundamentals. Instead, we see the plunge in the index as reflecting the final abandonment of a series of hypotheses that had encouraged speculative longs,” the analysts added.

“These range from a tightening of the market due to pent-up demand and a lack of spare output capacity through to imminent supply gaps when EU sanctions on Russian crude oil became effective, in the interim passing through background noise on super-cycles, predictions of $380 per barrel oil and a series of incorrect views about OPEC policy,” the analysts continued.

In the report, the analysts noted that they think the closing out of longs is largely due to the abandonment of the latest of these views and added that “in addition, many traders are now cutting back on risky positions before year-end”.

“For the first time in 2022 no new focal point has emerged to seamlessly continue what has been the dominant ‘rolling-crisis’ narrative, leaving crude oil prices prey to more top-down, macro-led concerns and the associated correction in prices,” the analysts stated.

Last week, analysts at Standard Chartered highlighted in a separate report that speculative positioning in oil was as bearish as during the early weeks of the pandemic.

“The crude oil index stands at -70.3, the lowest since mid-April 2020, about a week before WTI prices settled at a negative price. The index has fallen by 57.4 over the past three weeks; this is the largest three-week fall since February 2020, just before the temporary collapse of the OPEC+ agreement,” the analysts stated in that report.

In its most recent report, Standard Chartered analysts revealed that their crude oil money-manager positioning index had fallen 2.7 week on week to a 31-month low of -73.0.

At the time of writing, the price of Brent crude oil stood at $81.58 per barrel. Brent was trading at more than $98 per barrel last month.

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