Oil Prices Caught by Technical Pull

Oil was caught by the technical pull of a chart gap that opened up between a March 31 high and an April 3 low due to the announcement of voluntary output cuts by some OPEC+ agreement signatories on April 2.

That’s what analysts at Standard Chartered outlined in a report sent to Rigzone late Tuesday, adding that, “with little commitment across asset markets on most of the key top-level views about economies, currencies and rates, and with no fundamental issue dominating oil trader sentiment in the short term, the chart gap seems almost by default to have become a dominant feature”.

In the report, the analysts highlighted that, in Brent, the gap was between $79.80 per barrel and $83.50 per barrel.

“The market has spent the three previous consecutive trading days moving within the gap, as well as a fourth day up to time to writing, with just $0.55 per barrel of the gap currently unfilled,” the analysts said in the April 25 report.

The analysts noted in the report that the gap “is of course an artificial feature in that it is solely the result of output cuts being announced on a Sunday rather than on a trading day”. They added in the report that the timing of the announcement makes no fundamental difference.

“Instead, we think the recent dominance of the gap in short-term sentiment is simply a measure of the lack of market commitment to any view beyond short-term technical indicators and option expiries,” the analysts said in the report.

“This is perhaps the symptom of a market that has, at least for the moment, run out of persuasive ideas and which does not have the patience to wait for fundamentals to shift,” they added.

“It seems almost as if traders are simply marking the potential dead time between the announcement of cuts (2 April), the implementation of cuts (1 May) and the likely tightening of balances (June and into Q3),” the analysts went on to state.

Standard Chartered’s monthly supply and demand balances show a global surplus of 1.83 million barrels per day in April, which contracts to a surplus of 403,000 barrels per day in May, and becomes a deficit of 1.26 million barrels per day in June, the analysts outlined in the report.

“Our model shows deficits throughout Q3, with the largest being 1.56 million barrels per day in August,” the analysts stated in the report.

“We expect these deficits to remove the accumulated surpluses that have built up between October 2022 and April 2023. The tightening amounts to a swing of 3.09 million barrels per day between the April surplus and the June deficit, and should be large enough to create a basis for some traders to return to a more fundamentally driven view,” the analysts added.

“However, given the weakness in oil trading YTD we see very few traders willing to get too far ahead of any tightening, at least until there are either physical manifestations of it or there is a more positive and committed trading environment across risk assets,” the analysts warned.

In a separate report sent to Rigzone on April 21, analysts at Standard Chartered noted that oil prices lost upwards momentum after the April 2 announcement of voluntary output cuts by some OPEC+ signatories.

“From a technical point of view, this has resulted in a series of striking features,” the analysts said in that report.

“After the initial jump higher, prices stayed within the April 3 range for five consecutive days, and April 6 was an extremely rare triple inside day (a third straight day with a range within the previous day’s range),” the analysts added.

“After a failed break to the upside, prices fell below the April 3 low on April 18, and they have since attempted to close the gap on the chart. Momentum indicators have also turned bearish, with six consecutive lower intra-day highs,” the analysts continued.

In its latest report, Standard Chartered forecasts that the Brent price will hit $91 per barrel this year, $98 per barrel in 2024, and $109 per barrel in 2025. The company expects the commodity to average $88 per barrel in the third quarter of this year, $93 per barrel in the fourth quarter, $92 per barrel in the first quarter of 2024, $94 per barrel in the second quarter of 2024, and $98 per barrel in the third quarter of 2024, the report shows.

In a separate report sent to Rigzone this week, BofA Global Research highlighted that it had an $88 per barrel Brent forecast for 2023.

According to its latest short term energy outlook (STEO), which was released on April 11, the U.S. Energy Information (EIA) sees the Brent spot price averaging $85.01 per barrel this year and $81.21 per barrel in 2024.

The EIA sees the Brent spot price coming in at $87 per barrel in the third quarter of 2023, $86 per barrel in the fourth quarter, $85 per barrel in the first quarter of next year, $82 per barrel in the second quarter of 2024, and $80 per barrel in the third quarter of 2024, the STEO shows.

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