Machine Learning Oil Price Model Predicts WoW Decline

In a report sent to Rigzone late Tuesday by Standard Chartered Bank Commodities Research Head Paul Horsnell, analysts at the company, including Horsnell, revealed that, for Brent settlement on August 26, the company’s machine learning oil price model, SCORPIO, “indicates a week on week decline of $1.67 per barrel”.

“No single factor dominates in the SCORPIO disaggregation of influences and for the first time in several weeks positioning is not assessed to be one of the major determinants,” the analysts added.

In the report, the Standard Chartered analysts noted that “the last week’s fall in price surprised SCORPIO”, which they highlighted “had indicated a week on week rise at settlement on August 19”.

“Front-month Brent fell $4.64 per barrel week on week to settle at $77.66 per barrel on August 19, before slipping to a low of $76.55 per barrel intra-day on August 20,” the analysts said in the report.

The Standard Chartered analysts highlighted in the report that “the key support for Brent is the August 5 low of $75.05 per barrel”, adding that “below that level we would expect a period of relatively chaotic and algorithmic-dominated trading given the high degree of dislocation from fundamental influences”.

They noted, however, that “in terms of pure global supply and demand dynamics, we see little justification for a sustained period of trading below $80 per barrel”.

In a market analysis sent to Rigzone today, Chris Weston, the Head of Research at Pepperstone, said, “we see the oil markets eyeing important levels, with Brent crude seeing better buying flow ahead of the August 5 low of $75.05 and WTI crude ahead of $71.67 (also printed on August 5)”.

“A closing downside break of both levels would firmly cement the thesis that crude is trending strongly lower - and is an out-and-out sellers’ market - and despite Iran easing back on its anticipated retaliation measures, and despite a firm drawer in weekly crude inventory report, the buyers have had absolutely no effect on stabilizing prices,” he added.

“That said, the recent lows may prove to be big wood for the sellers to chop and given how short the market is positioned in crude, it wouldn’t surprise to see a technical rally play out in the near term,” Weston continued.

The Pepperstone representative noted in the analysis that “crude is here for a reason though” and added that “with gasoline in freefall, the tactical trade would be to sell any oversold technical bounce”.

According to Standard Chartered’s report, the company is projecting that the ICE Brent crude oil nearby future price will average $82 per barrel in the third quarter, $87 per barrel in the fourth quarter, $89 per barrel in the first quarter of 2025, and $92 per barrel in the second quarter.

Standard Chartered forecasts that the NYMEX WTI basis Cushing, Oklahoma, crude oil nearby future price will average $79 per barrel in the third quarter of 2024, $84 per barrel in the fourth quarter, $86 per barrel in the first quarter of next year, and $89 per barrel in the second quarter, the report showed.

According to the U.S. Energy Information Administration’s (EIA) latest short term energy outlook (STEO), the EIA sees the Brent spot price averaging $84.44 per barrel this year and $85.71 per barrel next year. The WTI spot price will average $80.21 per barrel in 2024 and $81.21 per barrel in 2025, the EIA’s August STEO forecasts.

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