Recent Oil Price Rebound Supported by Combo of Factors

The recent rebound in oil price is supported by a combination of easing macro concerns following last week’s U.S. job data and recovery from what was likely too sharp of a sell off last week.

That’s the view of analysts at Macquarie Bank Limited, according to a new report sent to Rigzone this week. In the report, the analysts noted that physical crude is potentially tightening but warned that total petroleum balances appear to be softening which they said could further pressure margins.

“Last week’s positive April U.S. jobs data had potential to ease macro concerns as crude price recovered,” the analysts said in the report.

“That said, the overall trend continues to show limited interest among investors to increase oil exposure. Recent crude volatility is also limiting the number of market participants as open interest and volume continue to fall for Brent,” they added.

“We believe the decrease in market participation has also been driven by a drop in the conviction on which way flat price will trend over the balance of 2023,” the analysts continued.

Both WTI and Brent lost managed money and other net length over last week, with WTI decreasing by 11K and Brent falling by 59K, the Macquarie Bank Limited analysts highlighted in the report.

“WTI continued the downward trajectory driven by an increase in short positioning for the NYMEX contract, with the long/short ratio going from 4.05 to 3.56,” the analysts noted.

“The Brent trend demonstrated a drop in long positioning predominantly for the ICE contract, with a long/short ratio move from 0.80 to 0.69,” they added.

“WTI+Brent speculative net length fell by 70.7K contracts to 149.1K - shorts grew by 37.9K, while longs fell 32.8K. Managed Money net positioning fell by 104.3K to 287K - shorts grew by 39.3 K contracts, while longs fell 65K. Brent MM + Other net short increased by 59.5K contracts to -150.9K - shorts increased by 22.7K, while longs decreased 36.8K,” the analysts continued.

In a separate report published on May 5, which was also sent to Rigzone, analysts at Macquarie Bank Limited announced that they are short term bullish crude as they expect direct crude balances to tighten and result in global stock draws in the third quarter of this year.

“The tightening is due to a combination of increased refinery runs post an unusually long global T/A season, increased throughput at existing refineries, and the ramp up of new kits,” the analysts said in that report.

“These factors should support crude prices by approximately $5 per barrel, but the benefit could be larger if product demand surprises,” the analysts added.

In this report, Macquarie Bank Limited analysts outlined that an initial increase in WTI and Brent prices of $5 per barrel had reverted “as prices are back to the levels prior to the early April [OPEC+] announcement”.

“The price pull-back appears to be driven by concerns over global economic growth, specifically in the U.S. and China,” the analysts stated in that report.

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