Oil price stuck in neutral despite underlying strength Oil price stuck in neutral despite underlying strength Oil price stuck in neutral despite underlying strength

Oil price stuck in neutral despite underlying strength

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  The WTI and Brent crude futures contracts continue to trade within relative narrow ranges with the technical-driven trade the focus at a time when the fundamental drivers have struggled to dictate the direction of prices. Some underlying fundamental strength has emerged this month with widening price differences between monthly contracts indicating a more robust outlook across parts of the physical market. Today, the market will be watching EIA's weekly crude and fuel stock report after the API reported a bigger-than-expected increase in crude stockpiles.


The WTI and Brent crude futures contracts continue to trade within relative narrow ranges, in WTI between USD 76 and 80, and Brent between USD 81 and 84, with the technical-driven trade the focus at a time when the fundamental drivers have struggled to dictate the direction of prices.

Overall, we maintain the view Brent and WTI will likely remain rangebound, respectively around USD 80 and USD 75 per barrel during the first quarter and next, but with disruption risks in the Middle East and OPEC+ production restraint potentially leaving the risk/reward skewed to the upside. In the short term, the market will be focusing on WTI and whether traders will be successful in pushing the price through resistance just below USD 80, a level that was unsuccessfully challenged last week. Brent, meanwhile, has got more work to do before potentially attempting a breakout, with the level to watch for that to happen being somewhat higher at USD 85.

Some underlying fundamental strength has emerged this month with widening price differences between monthly contracts indicating a more robust outlook across parts of the physical market. An example being the three-month spread for Brent, which has widened to around a USD 2.25 per barrel backwardation, highest since October, and up from a -USD 0.5 per barrel contango at the start of the year. In the short term, focus remains on the Red Sea where Houthi attacks continue and next week’s OPEC+ meeting which is expected to yield an extension beyond March of the current agreement to keep production curtailed.

Ongoing attacks on ships in the Red Sea seem to be partly to blame, with a crude analyst at Kpler saying that oil stockpiles in developed nations have tumbled to the lowest seasonal level in at least four years after Red Sea attacks led to some tankers avoiding the waterway, keeping crude in transit for longer, thereby swelling the volume held at sea to the highest in six months, according to data from Vortexa Ltd via Bloomberg.

A two-day rally earlier this week that followed an equal slump last week was halted last night after the industry-funded American Petroleum Institute reported an 8.4 million barrel increase in nationwide stockpiles. Later today, the EIA will publish its weekly report with surveys pointing to a 3.4 million barrel increase. I will post the results of the EIA report on X at @ole_s_hansen once published at 14:30 GMT.

Source: Saxo

Below chart shows speculators positioning in crude oil based on weekly Commitment of Traders reports from the CFTC and ICE Europe. The latest update covering forex and commodities can be found here

Speculators held a combined 410k contract WTI and Brent net long in the week to February 20. Overall, however, it was a mixed week with short covering lifting the WTI long to 134k while fresh short selling reduced the Brent long to 272k.

Commodity articles:

27 Feb 2024: Resilient gold market defies lower rate cut predictions
22 Feb 2024: 
Copper short squeeze fades ahead of key resistance
21 Feb 2024: 
Gold's resilience despite recent futures and ETF selling
20 Feb 2024: 
WTI crude eyes resistance amid improved signals
16 Feb 2024: 
Commodity weekly: Grains tumble; Industrial metals eye China boost
15 Feb 2024: 
US rate cut delay drives gold below $2000
13 Feb 2024: 
Video: What is driving Cocoa's sweet price
9 Feb 2024: 
Commodity weekly: Refined product strength lifts crude
9 Feb 2024: 
Podcast: Year of the metals
7 Feb 2024: 
Crude oil supported by tightening fuel outlook
6 Feb 2024: 
Gold and silver turn defensive on reduced Fed rate-cut optimism
2 Feb 2024: 
Commodity weekly: Tight supply adds fuel to uranium and cocoa rally
1 Feb 2024: 
Commodities: January performance and ETF flows
30 Jan 2024: 
Gold and silver look to FOMC for direction
29 Jan 2024: 
Video: Unpacking the reasons behind soaring coffee prices
26 Jan 2024: 
Commodity weekly: Back in black supported by China stimulus
25 Jan 2024: 
Grains up on short covering; softs supported by tight supply
24 Jan 2024: 
 Disruption risks drive specs into Brent; distorted EIA report up next
23 Jan 2024: 
Silver and copper in focus after recent declines
19 Jan 2024: 
Commodity weekly: Middle East, US rates, Bitcoin ETFs & Freight rates
17 Jan 2024: 
Natural gas focus switch from cold to milder weather ahead
16 Jan 2024:
 Data dependent precious metals continue their bumpy ride
12 Jan 2024: 
Commodity Weekly: Geopolitical risks lift crude and gold prices
9 Jan 2024: 
Q1 Outlook – Year of the metals
5 Jan 2024: 
Commodity weekly: Bumpy start to 2024
4 Jan 2024: 
What to watch in crude oil as 2024 gets underway
4 Jan 2024: 
Podcast: Crude oil and gold in focus as a new year begins

Previous "Commitment of Traders" articles

26 Feb 2024: COT: Record corn short, cocoa surge no longer supported by speculators
19 Feb 2024: 
COT: US inflation surprise drives broad selling of metals
5 Feb 2024: 
COT: Speculators chase false crude break; grain short extends further
29 Jan 2024:
 COT: Squeeze risks after funds sold into rising commodity markets
22 Jan 2024: 
COT: Commodities short-selling on the rise amid China woes and Fed caution
15 Jan 2024: 
COT: Grains sector slump continues; Mideast risks lift crude demand
8 Jan 2024
COT: Weakest commodities conviction since 2015
18 Dec 2023:
COT: Crude long hits 12-year low ahead of FOMC bounce
11 Dec 2023: 
COT: An under owned commodity sector raising risk of an upside surprise in 2024
4 Dec 2023: 
COT: Speculators add further fuel to gold rally

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.