July Brent futures witnessed a passive week, as price action remained tight between a range of $81.50-84.50/bbl. There was a slight rally to $84.53/bbl in the early stages of May 10, before prices got scared off the $85/bbl mark and corrected lower, opening the week at $82.78/bbl.
The news this weekend involved Iraq and their decision to extend output cuts in line with OPEC. Iraq’s oil minister, Hayyan Abdul, initially indicated on Saturday that Iraq would not agree to renew cuts, with OPEC members set to meet on Jun 01 and an extension to the current cuts into the second half of the year increasingly anticipated. However, Iraq reversed their decision, announcing that “extending the voluntary reduction on crude oil is subject to agreement between OPEC countries”.
In regards to CTA positioning, managed money net length across Brent, WTI, HO, GO and RBOB has fallen by around 250,000 lots from the 2024 highs, which has contributed to pushing the market lower. Speculative CFTC positioning in Brent still remains quite long, with a long:short ratio of 3.92, however, a removal of 50mbbls (-13%) of length marks the greatest exodus of positions since 10-Oct-23. This has also been coupled with a 10mbbls (+14%) increase in short positioning. This bearishness has also been translated into WTI, with net positioning at its lowest since early Feb.
China also reported mixed inflation data for April, as a sustained recovery in CPI inflation, +0.3% YoY, was countered by Chinse PPI inflation shrinking for a 19th consecutive month, -2.5% YoY, signalling that factory and business activity in the world’s biggest crude importer remains weak. Important macroeconomic releases this week include both US PPI (May 14) and US CPI (May 15), with the market expecting a value of 3.4% YoY (3.5% last) for the latter.
Looking ahead to this week, we forecast prices to push towards and possibly subduct the $80/bbl mark, with fundamentals remaining soft and OPEC members’ discipline wavering if there is sufficient demand to push prices north of $85/bbl; with production very much at the ready. In turn, we hold a bearish view and forecast Brent prices to between $79-81/bbl.
