Commodities: Oil Pressure


Oil managed to claw back some of its losses on Friday, with ICE Brent settling almost 2% higher on the day. Despite this, oil has still seen its worst week this year, as concerns grow over a flaring up in COVID-19 cases across Europe. This comes at a time when there are clear signs of weakness in the physical oil market, with a number of unsold West African cargoes for April loading, Bloomberg suggests that there are 40-50 unsold cargoes for the upcoming month. In addition, Iranian flows have slowly crept higher, and this doesn’t help during a time when Chinese buying appears to have slowed. Iran appears to be in no hurry to return to the nuclear deal, insisting that the US must remove sanctions before they will return to their commitments under the deal. However, despite this standoff and sanctions remaining in place, Iranian oil flows have been edging higher.

Timspreads also suggest a less tight market, with the prompt ICE Brent spread seeing its backwardation falling from US$0.55/bbl at the start of last week to just US$0.18/bbl currently. Although this could also reflect a large amount of speculative money (which would have been in the nearby contracts) exiting. Positioning data does not reflect the large sell-off we saw on Thursday, for that we will need to wait for the Commitment of Traders report released at the end of this week. However, the latest data still shows that speculators reduced their net long in ICE Brent by 5,756 lots over the last reporting week, leaving them with a net long of 334,403 lots as of last Tuesday. The data also shows that speculators reduced their spread position over the reporting week by 8,855 lots. This reduction in spread positions would have also put pressure on timespreads.

The wobble in the market will give OPEC+ something to think about ahead of their meeting on 1 April. It will likely also make it more difficult for the market to second guess what the group may do. Clearly, prior to the recent downward pressure, expectations were that OPEC+ would start to ease cuts. However, the group may be more hesitant to do so now, particularly if sentiment does not shift ahead of the meeting. There is still room for some downward pressure in the near term, however, in the medium term, we continue to hold a constructive outlook on the market, with inventories set to continue drawing through the year, assuming we do not see any downward surprises on the demand side.  

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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