The tone among oil traders remains pessimistic and hedge funds still lean toward the short side of the market, Standard Chartered analysts said in a report sent to Rigzone on Tuesday evening.
“Oil price dynamics remain lackluster,” the analysts add.
“We noted in a previous report that front-month Brent was experiencing a series of days in which the entire range of $83.45 to $83.60 per barrel was traded during the day,” they said. added.
“Over the past week, this trend was only broken on May 15; the range of $83.45 to $83.60 per barrel was traded over the remaining 14 trading days in May,” they continued.
The prolonged sideways price movement pushed volatility measures lower, analysts said in the report.
“Brent’s realized annualized volatility over 30 trading days in the first month was only 16.9% at the time of settlement on May 20, a weekly reduction of 2.1 percentage points, with a volatility measure on 10 trading days down 7.4 percentage points week over week to just 12.5. percent,” they said.
“Front-month Brent settled at $83.71 per barrel on May 20, a weekly increase of $0.35 per barrel and lower than the $1.44 per barrel increase reported by SCORPIO, our machine-learning oil price model,” they added.
Analysts noted in the report that for the Brent settlement on May 27, SCORPIO indicates a weekly increase of $0.47 per barrel. Technical trading indicators are the main drag on prices, analysts pointed out in the report.
In Standard Chartered’s latest report, analysts said the oil market “looks particularly moribund over the past week compared to the strength in the metals and gas markets.”
“We doubt that trader morale will improve before the end of May; in other words, prices and volatility may not accelerate significantly until the eight countries that have undertaken voluntary production cuts beyond their commitments in the OPEC+ agreement make announcements “, they said.
“The exact timing of this series of unilateral announcements is uncertain (voluntary reductions are outside the scope of the OPEC+ ministerial meeting); However, we believe the market likely needs this cycle of announcements before regaining bullish momentum,” the analysts continued.
The Standard Chartered report forecasts that the near future price of Brent ICE will average $98 per barrel in the third quarter and $106 per barrel in the fourth quarter. The report predicted that the near future basis price of NYMEX WTI (West Texas Intermediate) would average $95 per barrel in the third quarter and $103 per barrel in the fourth quarter.
In a separate report sent to Rigzone on May 14, Standard Chartered analysts said the oil market moved sideways in May, “with the band of $83.45 to $83.60 per barrel for front-month Brent entirely contained within the intraday range for the 10 trading days in May thus far.”
“The contract settled at $83.36 per barrel on May 13, a weekly increase of $0.03 per barrel. After briefly exceeding 21% in early May, 30-day Brent realized volatility was again dragged down by the recent sideways movement; it stood at 19.0 percent at the May 13 settlement, a weekly decline of 1.1 percentage points,” he added.
In that report, Standard Chartered’s Brent and WTI price projections for the third and fourth quarters of 2024 were identical.
In a research note sent to Rigzone on Monday, JP Morgan analysts said that at $84, Brent was trading below its “model-derived fair value of $88 in May, likely driven lower by the ‘significant build-up of stocks over the last six weeks’.
“From here, we expect overall market fundamentals to improve and similar inventory drawdowns and price action to those seen last summer, with Brent oil rising $10 from to current levels by September,” they added.
“OPEC’s main problem remains in 2025, when oil balance sheets are expected to relax significantly. Despite this, we do not see why a weak 2025 would prevent prices from strengthening later this year,” they continued.
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