The July Brent futures contract has now reached the $83.30/bbl handle, with bearish sentiment continuing to permeate into markets. On one hand, we continue to see geopolitical tensions loom amid Israel continuing its operations in Rafah, potentially threatening supplies, while on the other hand, White House advisor Amos Hochstein claims that despite remaining at 40-year lows, US supply is sufficient to address any supply concerns.
In refined products, China has issued its second batch of refined fuel export quotas for 2024, totalling 18 million metric tonnes. The volume surpasses 2023’s second batch by 2 million tonnes and may depress refining margins in Asia further. In further bearish news, the United States Oil ETF has seen an abysmal week on a net option delta basis, with May 06 seeing traders sell a net equivalent of nearly -127,900 shares of stock – the largest delta coming from selling calls. Finally, Onyx’s CTA positioning data highlights a d-o-d decline in crude, and products throughout May with May 06 seeing Brent’s net positioning sit at -7.7kbbls, 140% down week-on-week.
Gauging macroeconomic sentiment, Eurozone business activity expanded at its fastest pace in almost a year in April with a PMI of 51.7 for the month, up from March’s 50.3. Despite this, the US continues to battle concerns of stagflation – evidenced by a rise in the US Inflation Surprise Index and a decline in the US Economic Surprise Index. Coupling this with a still-strong US dollar, despite the recent sell-off, we hold a bearish view for crude this week. However, considering previously seen support levels and assessing how tight supplies are, we do not expect a substantial sell-off in Brent. Thus, we expect the July futures to print between $82-84/bbl by the end of the week.
