Lack of catalyst pushes crude into tightening range Lack of catalyst pushes crude into tightening range Lack of catalyst pushes crude into tightening range

Lack of catalyst pushes crude into tightening range

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

  • Crude oil's steady ascent since December faces resistance as attempts to breach USD 80 (WTI) and USD 85 (Brent) falter.
  • Despite recent buildup in hedge funds' long positioning, the lack of a clear catalyst raises skepticism for an immediate upside breakout in crude oil prices.
  • Narrowing trading ranges in Brent and WTI, reaching a ten-year low, reflect the market's indecision and the success of OPEC+ in keeping prices supported

Crude oil’s steady ascent since December, when Houthi attacks on ships in the Red Sea raised the geopolitical temperature while supporting tighter supply conditions with millions of barrels of crude and fuel being stuck at sea for longer, is showing signs of running out of steam. Recently WTI made an unsuccessful attempt to break above USD 80 resistance while Brent’s upside move was arrested well ahead of key resistance at USD 85. While a recent buildup in hedge funds' long positioning and the current price behavior support an upside break, we stay skeptical given the lack of a clear catalyst to trigger such a move.

The impact of the crude markets' inability to break higher, or lower for that matter, can be seen in the narrowing trading ranges with the four-week rolling trading range in Brent and WTI both falling to a ten-year low with a range in WTI this past month of USD 5.3 and just USD 4.2 in Brent. While the geopolitical temperature has moved higher by a few degrees since December we have yet to experience any disruptions, and the market has concluded that such a risk is currently very low.

Without OPEC+ supporting prices through supply cutbacks – which on paper total roughly 2 million barrels per day – Brent crude would most likely have traded in the low USD 70’s or perhaps even lower. So, while the efforts have not yielded higher prices many of the producers need to balance their budgets, prices have held steady and high enough to ensure robust production growth from non-OPEC+ members. Not least the US which according to EIA’s latest Short-term Energy Outlook could see production accelerate to a record 13.65m barrels/day in 2025 from 13.19m barrels/day this year.

Source: Saxo

Crude trades higher today after yesterday’s hotter-than-expected US inflation print did little to alter the market's view on the timing and subsequent depth of incoming growth-supportive US rate cuts. In addition, the market also received a boost after the American Petroleum Institute reported across-the-board reductions in US crude and fuel stocks (see table insert in chart above). Before then the market had slipped after OPEC in their latest monthly update wrote supply cuts had stalled as Iraq for a second month produced around 200k barrels/day above its quota.

At this time of year, US crude stocks tend to rise while fuel stocks drop amid lower refinery activity during the annual maintenance season. Stock levels of all three trail their five-year averages, not least distillates or diesel inventories which have fallen for seven straight weeks, hitting the lowest level since December. If confirmed by the EIA later today, the API reported drop in crude oil stocks would be the first in seven weeks. I will post the results of the EIA report on X at @ole_s_hansen once published at 13:30 GMT.

Managed money accounts, such as hedge funds and CTA’s, have been a main source of price support in recent months with net buying since December 15 driving up the combined net long by 250,000 futures contracts (250 million barrels) to 421,000, and while the initial buying was concentrated in Brent amid supply disruption risks, WTI has been the main recipient during the past month. However, with the upside momentum now showing signs of stalling that buying support may stall as well, leaving both crude contracts exposed to long liquidation should prices turn lower.

For now, as mentioned we see no catalysts on the short-term horizon strong enough to force a change, with day traders focusing on rangebound trading strategies instead of looking for breakouts to drive fresh momentum.


Commodity articles:

8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: 
Investing with options - Gold optionality
6 Mch 2024: 
How to add gold exposure to your portfolio
6 Mch 2024: 
Video: What happened to the gold prices?
1 Mch 2024: 
Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
29 Feb 2024: 
Podcast: Why speculative interest is important to understand
28 Feb 2024: 
Oil price stuck in neutral despite underlying strength
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

Previous "Commitment of Traders" articles

11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: 
COT: Underinvested speculators fuel gold's latest surge
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

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/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

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. Android is a trademark of Google Inc.

©   since 1992