Fundamentals Strong Enough for $90+ Oil Period

Fundamentals are not yet strong enough to sustain prices above $100 per barrel, but they are strong enough to sustain a prolonged period of trading above $90 per barrel.

That’s what analysts at Standard Chartered believe, according to a new report sent to Rigzone by the company, which noted that a “sharp decline” in the first two trading days of the year has been followed by a “steady correction” upwards.

“This has seen the rally that started on 5 January extend beyond $10 per barrel on 23 January, taking Brent intra-day above its $88.63 per barrel Q4-2022 average for the first time this year,” the analysts stated in the report.

“The rally has been a steady grind upwards; in the past 12 trading days there have been 10 days of higher intra-day highs and 11 days of higher intra-day lows,” the analysts added.

In the report, the analysts noted that the rally has been supported by more positive speculative sentiment.

“Our crude oil money-manager positioning index increased by 23.2 week on week to -39.6 in the latest data, the largest week on week improvement since the price lows of April 2020,” the analysts said in the report.

“We think trader consensus during this month has become less concerned about OECD recession and more convinced of the prospect of significant demand growth, from China and India in particular. With the market currently fairly balanced and greatly improved sentiment, we think the rally can continue its grind higher,” the analysts added in the report.

Bullish Demand Beginning to Drive Increasing Net Length

In a separate report sent to Rigzone on Tuesday, analysts at Macquarie Bank Limited stated that bullish demand is beginning to drive increasing net length and open interest in WTI and Brent “as weekly flows reversed the nearly monotonic liquidation of the past few months”.

“The large increase in Chinese purchases have tightened core Brent markets including West Africa and the North Sea. We expect sentiment and physical flows from China’s reopening to increase net length over the next two to three months,” the analysts added in the report.

“Much like last year, we expect supply growth to reverse the rally in March or April,” the analysts continued.

WTI and Brent speculative net length grew by 64.2 K contracts to 291.3 K - shorts fell by 26.4 K, while longs grew 37.8 K - and managed money net positioning increased by 79.6 K to 396 K - shorts decreased by 46.7 K contracts and while longs increased 32.8 K - the report outlined.

At the time of writing, the price of Brent is trading at $86.48 per barrel. The last time it closed above $90 per barrel was on November 16, 2022.

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