Oil markets are bearish but the decline is limited |

WTI and Brent crude oil prices fell for a third straight session on Tuesday, with the US benchmark now at its lowest level in a year. First-month Nymex crude for January delivery closed the day -3.5% at $74.25/bbl, its lowest level in nearly a year, while February Brent crude ended at – 4% to $79.35/bbl, its weakest close since Jan. 3. It is now clear that the market selloff and concerns about more aggressive monetary tightening by the Federal Reserve have overshadowed any positive effect from the New cap on Russian oil prices Sales.

Oil traders are eagerly waiting to see how Russia’s oil price cap will affect the market, but the measure has yet to impact prices.

Meanwhile, data released on Monday showed that The ISM services index in the United States rose slightly to 56.5% in November against 54.4% in October, which “triggered red flashing signals that the Federal Reserve could keep interest rates higher for longer, increasing recession risks in the United States and reducing energy consumption,” Stephen Innes, managing partner at SPI Asset Management, told Morningstar. The ISM surveys purchasing and supply managers of non-manufacturing (or service) companies. The services report measures business activity for the whole economy; above 50 indicates growth, while below 50 indicates contraction.

Oil Price Bearish Sentiment

So how bearish has sentiment become in oil markets?

According to commodity analysts at Standard Chartered, speculative positioning in crude oil has remained commonplace for most of 2022, but has changed in recent weeks. Analysts have revealed their proprietary Crude Oil Fund Manager Positioning Index, which compares net long positions in the four major New York and London-based crude contracts against open interest and historical norms. , is currently more negative than those of all the other products they track. StanChart indicates that in recent months crude oil has remained near the bottom of the metals and energy rankings in terms of implied positive speculative preference, while gasoline has been near the top.

The StanChart crude oil index currently sits at -70.3, the lowest since mid-April

2020 (approximately one week before WTI prices settle at negative price). The index has now fallen

of 57.4 over the past three weeks, marking the largest three-week decline since February

2020, just before the temporary collapse of the OPEC+ agreement.

Oil positioning

Source: Standard Chartered

However, StanChart says the situation this time around is very different from what it was during the historic oil price crash of 2020, which should limit the drop in oil prices. On the one hand, analysts note that oil market fundamentals are much more favorable this time around than they were at the start of 2020; demand is not about to collapse due to a pandemic and no price war between producers is present at the moment.

Experts say oil prices are caught in the backlash of top-down macro trading with positive and negative news on the economic front triggering a sell-off.

Negative US Economic Data Points Trigger Oil Price Selloff Amid Recession Fears, StanChart Says; however, positive data points ironically have a similar effect due to the strengthening US Dollar.

Additionally, sentiment had been buoyed by hopes of a re-opening of China, but as timeframes dragged on, many traders preferred to bet more on the metals markets instead.

Fortunately for the oil bulls, commodity experts say the new shorts are relatively weak and will soon be covered, helping to shore up oil, although in the near term the market is likely to accentuate the negative.

As for Russia’s maritime oil price cap, StanChart predicted that it will have little effect on oil prices. Analysts note that China, India and Turkey are the three main pivots

Russian oil consumers and none have yet hinted that they would consider subscribing to the cap. Without the participation of these three countries, the amount of Russian oil that could move subject to the cap would probably be small even if Russia agreed to sell oil on these terms (which it has repeatedly stated that it does not would not).

The big question here in terms of market impact then is whether Russia can transport oil to its major consumers (including providing adequate insurance) without using EU or other G7. StanChart says Russia has acquired a large enough ‘ghost’ tanker fleet since its invasion of Ukraine that it can use to move most of the volumes moved; however, analysts note that the insurance aspect is likely to cause significant problems. This has led analysts to predict that Russian crude production is set to fall by 1.44 million barrels per day in 2023 thanks to a gradual shortage of high-quality equipment and a lack of access to international service companies. over time.

By Alex Kimani for

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