Standard Chartered Analysts Draw 3 Main Oil Conclusions from Past Week

In a report sent to Rigzone by Standard Chartered Bank Commodities Research Head Paul Horsnell late Tuesday, analysts at the company, including Horsnell, outlined that they had drawn three main oil market conclusions from the events of the past week.

“One - central bank expectations are key drivers of oil price volatility … two - the latest drive lower has been due to long liquidation, not new shorts … [and] three - machine learning can provide a useful early warning system,” the analysts stated in the report.

Looking at the first conclusion, the analysts noted in the report that, in their view, the past week “has confirmed that macro is king”.

“Regardless of energy market fundamentals and the geopolitical background, nothing affects oil price dynamics as much as changes in market expectations of central bank actions,” they added.

Focusing on the second conclusion, the analysts stated in the report that there has been 135.2 million barrels of long liquidation by money managers over the past two weeks across the four main Brent and WTI contracts.

“The closing of longs has outnumbered new shorts by roughly five-to-one; money-manger shorts increased by 27.4 million barrels over the past two weeks,” they said.

“The only time there was more long liquidation over two weeks was in February 2020 with the start of the pandemic and the OPEC+ price war. Long liquidation has only exceeded 130 million barrels over two weeks four times, two of which have been in the past three months,” they added.

Looking at their third conclusion, the analysts noted in the report that, “while the market may have appeared almost unanalyzable recently, SCORPIO, our machine-learning oil price model picked up a number of large negatives”.

“Its indication for October Brent settlement on 5 August was $76.19 per barrel; the actual settlement was $76.30 per barrel,” they added.

Oil prices have been highly volatile over the past week, the analysts stated in the report, highlighting that Brent traded across a $6.75 per barrel range and hit a seven-month low of $75.05 per barrel intra-day on August 5.

They pointed out in the report that SCORPIO indicates a week on week increase of $1.48 per barrel from August 5 prices, “implying an October Brent settlement of $77.78 per barrel on 12 August”.

“On a purely fundamental basis, we see scope for a swift rally back above $80 per barrel given robust demand and a significant Q3 global stockdraw,” the analysts said in the report.

“However … we think that macro expectations will tend to lead when expectations of central bank actions become volatile,” they added.

In a market comment sent to Rigzone on Tuesday, Hani Abuagla, a Senior Market Analyst at XTB MENA, warned that concerns about weakened demand and a potential U.S. recession could continue to weigh on the oil market.

“This is despite reduced output from Saudi Aramco and ongoing production cuts by OPEC+ aimed at stabilizing global prices,” Abuagla added.

“Traders could now turn their attention to the United States crude oil stocks change … A drop in crude inventory data could support oil prices to a certain extent although selling pressure could remain,” Abuagla continued.

In a separate market analysis sent to Rigzone today, Antonio Ernesto Di Giacomo, a Senior Market Analyst at XS.com, noted that, “as the world awaits the … [U.S. crude oil stock] report, the industry remains vigilant for changes that could alter the delicate balance between supply and demand”.

“Market players must carefully assess emerging trends and adapt strategies to navigate this uncertain and challenging environment,” he added.

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