Story By Andreas Exarheas| RigZone.com | Oil prices have failed to achieve any significant momentum in 2024 yet, either upwards or downwards, analysts at Standard Chartered noted in a report sent to Rigzone on Wednesday. “While prices have moved across a range of nearly $6 per barrel, excursions outside the $76-79 per barrel range for Brent have been brief,” the analysts said in the report.
“The lack of momentum is perhaps best illustrated by the intra-day range for front-month Brent; it has included $77.97 per barrel for 12 consecutive trading days: every trading day this year plus the last trading day of 2023,” they added.
In the report, the analysts said SCORPIO, which is Standard Chartered’s machine-learning model for near-term Brent price forecasting, does not expect a sharp change in this pattern over the next week.
“Last week SCORPIO predicted a week on week rise of $1.82 per barrel, taking front-month Brent to a settlement of $77.94 per barrel on 15 January,” the analysts stated in the report.
“The actual week on week increase was just $0.21 per barrel higher, with settlement at $78.12 per barrel. For the next week, SCORPIO predicts a week on week increase of $0.70 per barrel to $78.82 per barrel,” they added.
The Standard Chartered analysts said in the report that they would not usually rush to take an alternative view to SCORPIO, “particularly when it is in the middle of something of a purple patch in terms of its predictions”. They added, however, that they “wonder if current Brent volatility (just 30.6 percent on a 30-day realized annualized measure) understates the potential for a move higher that could break the gravity seemingly exerted by the $77.97 per barrel line”.
“Traders have perhaps become too complacent, in the belief that price risks have not been skewed higher by events this year,” the analysts said in the report.
“In our view, there is an increased risk of a more direct U.S.-Iran confrontation in any of several key areas across the Middle East and we think that the combination of sub-$80 per barrel prices and low volatility does not adequately capture that risk,” they went on to state.
In an oil report sent to Rigzone late Wednesday, Macquarie strategists said they keep a range-bound view of price and added that they anticipate the current Red Sea risk to provide support for the time being “as more shippers elect to bypass the route and transit times increase”.
“That said, our large surplus balances suggest crude would break out of the bottom of the range if not for geopolitical tensions,” the strategists noted in the report.
“Crude has traded in a $10 range for the past six weeks even with disruptions in Libya and the Black Sea reducing sweet crude availability. We do not anticipate a deviation from the range in 1Q24 without escalation in the Middle East resulting in actual supply loss,” they added.
“Compared to 2022 and 2023, we see fewer mechanisms in 2024 that can provide price support either through financial risk or physical disruption,” the strategists went on to state.
In the oil report, the Macquarie strategists highlighted that both WTI and Brent speculative length grew over the last week.
“WTI increas[ed] by 8.7K and Brent r[ose] by 34.5K,” the strategists said.
“After dropping by 60.4K contracts the prior week, WTI + Brent MM increased by 51.8K contracts with Brent responsible for almost 70 percent of the move,” they added.
“Brent speculator length gained as new long interest was over 15 times the decline in shorts. WTI had a smaller increase in speculator length as short covering was partially offset by long liquidation,” they continued.
“Brent and WTI both saw decreased length for commercial participants summing to 46K after posting an increase of 41K contracts the week before. This change in commercial flow is likely due to reduced margin hedging and liquidation by IOC’s and trade houses,” the strategists noted.
To contact the author, email andreas.exarheas@rigzone.com
