After a major decline that saw oil prices fall to multi-year lows, oil markets have bottomed out and begun an ascent higher. Over the past two weeks, a general bearish and risk-off sentiment cut across asset markets and triggered a lengthy unwind of speculative positions in oil futures. A top commodity analyst blamed the unusually steep decline to significant selling by banks in response to gamma-effects as prices closed in a concentration of producer puts around USD 75/bbl for Brent and USD 70/bbl for WTI crude. Luckily for the bulls, in the current week, oil prices have staged a remarkable turnaround, with Brent climbing from a two-year low around $70 per barrel that’s a nearly 10% rally in the space of just three days. And now commodity experts at Standard Chartered are saying that the path of least resistance for oil prices at this point is higher, not lower. Previously, the analysts had said that the unwinding of speculative length appears to be complete at this juncture, thus lowering selling pressure, but had warned that prices might retest the lows if the FOMC hikes its policy rate by more than the widely expected margin of 25bps. Thankfully, the markets have successfully scaled that wall of worry after the Fed’s hike on Wednesday came in-line with expectations. StanChart expects last week’s gamma effects to reverse course with banks buying back positions thus reinforcing the short-term rebound. Beyond that, StanChart says oil prices will largely be dictated by OPEC’s and consuming countries’ strategic inventory policy shifts. Specifically, the experts have predicted the current surplus will persist till early Q2; however, they expect the rest of the year to be in a modest deficit.
Goldman Sachs’ Jeffrey Currie has acknowledged that the unexpected banking crisis has soured the macroeconomic outlook significantly and weighed heavily on oil prices, calling the situation a “big, scarring event.” Still, the analyst expects prices to rally from here, and has only lowered his 2023 end-of-year target from $100 to $94 a barrel.
According to Currie, fundamentals in the oil markets remain largely unchanged thus supporting the previous bull case. He has pointed out that key physical indicators, such as refining margins and time spreads, have remained stable, a positive sign that in-use demand remains strong and is likely to continue driving the physical market higher. Currie has also argued that the banking crisis will only have short-lived effects but very limited impact over the long-term,
“I think the key message here is fundamentally we haven’t seen a big significant shift,” he said. “Physical markets are going to have to drive this market higher.”
However, he has warned that the turmoil will result in a “… a longer path forward.”
Hedge fund manager Pierre Andurand of Andurand Capital is not a mere bull but an ultra-bull: Andurand has predicted that crude will hit $140/bbl by the end of the year.
Just like Currie, Andrurand argues that the recent oil price crash due to banking jitters was purely speculative. Further, he expects crude oil demand to peak around 2030, but “even when we peak, oil demand won’t fall down so fast. We will reach peak demand towards 110M bbl/day and then a slow decline from there.” BlackMask Podcast: