Trader Super-Cycle Belief Has Been Dented

Trader belief in a super-cycle has been dented.

That’s according to oil and gas analysts at Standard Chartered, who noted that, without that belief, the likelihood of prices regaining $85 per barrel quickly, let alone pushing on beyond $100 per barrel, appears limited.

“Most of the rally that took Brent from below $70 per barrel at end-May to over $86 per barrel in late-October has unwound,” the analysts said in a market note sent to Rigzone on Monday.

“We think the rally was a bubble based on a view that $100 per barrel was imminent, a view which resulted from significant overstatements of market tightness and demand,” the analysts added in the note.

The Standard Chartered representatives outlined that the key question now is whether the Omicron Covid-19 variant, and government responses to it, have significantly reduced the credibility of calls for much higher prices.

“If so, then we think the November 26 fall was not excessive; it was the deflation of a bubble and an overdue pricing-in of weakening fundamentals,” the analysts said.

“Away from Omicron, the latest U.S. weekly data was mildly bullish, while the sharp Delta variant-related falls in mobility in central Europe remain a concern in terms of a slowing in the demand recovery,” the analysts added.

The Standard Chartered analysts noted that the $9.50 per barrel fall in Brent prices on November 26 was the fifth-largest single-day fall in USD terms and the seventh largest in percentage terms. Brent has fallen more than 10 percent in a day on only 15 occasions, with five of these occurring in the last 21 months, the analysts highlighted.

Friday Selloff Erred for the Extreme

In a separate statement sent to Rigzone on Monday, Rystad Energy’s senior oil markets analyst Louise Dickson said the emergence of another Covid-19 variant is “definitely threatening” the level that oil demand has managed to recover to but added that Friday’s selloff was “erred for the extreme, even for a Black Friday sale”.

“Omicron caused a market panic that elicited memories of the April 2020 prince plunge, but now that the calculators are out and fundamentals being assessed, the price drop is being met with a flurry of cool-headed and more calculated buying,” Dickson said in the statement.

“New lockdowns have been a salient threat to oil demand and prices but pricing this downside has been on the back-burner until suddenly the kitchen was on fire, or at least perceived to be on fire,” Dickson added.

“Friday’s Omicron selloff was more severe than when Brent shed more than $7 per barrel in July 2021 over the Delta variant market scare,” the Rystad analyst added.

Dickson noted that the downside risk to oil demand due to a fresh wave of travel restrictions is a reasonable assumption given past reactions by governments in their aim to shut out new virus variants, as well as current actions already being taken to contain the new Omicron variant. The Rystad analyst also added that the oil price downgrade could carry one positive consequence of alleviating inflationary pressure, “as lower priced energy would help ease the dent in consumer price index inflation”.

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