Story by Andreas Exarheas| RigZone.com | Oil’s Bermuda triangle is nearing an end, a Bofa Global Research report sent to Rigzone by the BofA team this week stated.
“Oil prices have been trading in a narrowing range, or a triangle pattern, for over a year now,” the report stated, adding that a triangle pattern is technically synonymous with a compressed coil or spring.
“When it becomes too tight and what’s holding it lets go, a sharp and sudden breakout trend occurs,” the report noted.
“This becomes increasingly likely after five or more swings within the triangle occur. Our weekly chart of Brent oil prices labels five swings … Another tendency is for price to break out from the triangle 61.8-76.4 percent of the way through it, which we estimate to be in August-October of 2024,” it added.
“Our current wave count associates this pattern with an urban legend, the Bermuda Triangle, where things are said to have disappeared. Perhaps some disappearance of macro risk premium, global demand and/or supply cut hope is on the horizon and causes a breakdown in oil to $63.02/$60.00 a barrel by year end 2024,” the report continued.
The report stated that a weekly close in Brent below $78 would look like a bearish triangle breakdown.
“Alternatively, the burden is on the bulls to push oil higher to signal a different wave count. A weekly close above $89 per barrel could trigger a bullish spring higher to $105 per barrel,” it added.
A Rystad Energy oil macro update from Rystad’s Global Market Analysis Director, Claudio Galimberti, highlighted that Brent crude prices dropped below $80 per barrel on Monday “thanks largely to muted demand amid an uncertain economic outlook for China”.
“A weekend missile attack on the Israeli-occupied Golan Heights threatened to spike prices, but officials are still communicating their strong desire to resolve the conflict without engulfing the entire region in war,” the update, which was sent to Rigzone by the Rystad team on Tuesday, said.
“Optimism that a ceasefire may come sooner rather than later is helping to mitigate supply disruption concerns. But if negotiations are unsuccessful, a significant geopolitical risk premium may resurface, pushing prices much higher,” it warned.
In the update, Galimberti said July has been a bad month for the oil bulls and added that “the downward momentum appears to gather pace as we move into August this week”.
“Weakening global demand growth, an unresolved economic outlook in China and still elevated global oil inventories are continuing to weigh on prices,” he stated.
“Falling from a high of nearly $90 a barrel in early July, prices fell below $80 on Monday for the first time since early June,” he continued.
In a research note sent to Rigzone by the JPM Commodities Research team late Monday, analysts at J.P. Morgan said the estimated value of open interest across energy markets “declined by $10 billion week on week (-1.6 percent week on week) to $641 billion”.
They added, “The weekly decline was primarily driven by lower crude oil prices, as front-month WTI and Brent contracts decreased by -3.7 percent and -1.8 percent, respectively.”
“Elsewhere in the energy complex, open interest remained broadly flat in petroleum products and natural gas markets, as weaker prices across the curves broadly offset the modest inflows across all trader types,” they continued.
In a report sent to Rigzone by the Fitch Group last Friday, analysts at BMI said Brent crude had “come under pressure” last week.
“High-frequency data suggests that the physical market remains fundamentally tight, and there have been no specific developments in the oil market itself that would warrant the recent selloff,” the BMI analysts said in that report.
“Investors may be looking forward to an anticipated softening of demand later in the year, coupled with the scheduled return of cut OPEC+ barrels to market starting in October. Meanwhile, non-OPEC supply growth outside of the U.S. is set to reach a multi-decade peak over 2024-2025, further loosening the fundamental balance,” they added.
“We currently hold to our forecast for Brent crude to average $85 per barrel in 2024 and $82 per barrel in 2025, while acknowledging rising risk to the downside,” they continued.
To contact the author, email andreas.exarheas@rigzone.com
The Mystery of The Bermuda Triangle
The Bermuda Triangle, a region in the western part of the North Atlantic Ocean, has long been shrouded in mystery and intrigue. Spanning the area between Miami, Bermuda, and Puerto Rico, it has earned a notorious reputation due to numerous reports of ships and aircraft disappearing without a trace. This enigmatic zone, often referred to as the “Devil’s Triangle,” has captivated the imagination of many, giving rise to various theories ranging from paranormal activity to natural phenomena.
In the context of oil prices, the Bermuda Triangle serves as a fitting metaphor for the current state of the market. Much like the unexplained vanishings in the Triangle, the oil market has seen a disappearance of clarity and predictability. The once volatile swings and evident macroeconomic signals have seemingly vanished, leaving investors and analysts adrift in uncertainty. As the oil market continues to trade within this narrowing range, reminiscent of the boundaries of the Bermuda Triangle, the anticipation of a significant shift looms. Just as explorers and scientists have sought to uncover the secrets of the Bermuda Triangle, market participants are on edge, speculating whether the disappearance of macro risk premium, global demand, or supply cut hope will finally lead to a breakdown in oil prices, potentially plummeting to the predicted $63.02/$60.00 a barrel by the year’s end.
