Energy - Specs cut their Brent net long
Broader market concerns weighed heavily on the oil market last week, while fundamentals have clearly not been strong enough to prop up the market. ICE Brent finished the week almost 12% lower, leaving the market at its weakest level since December 2021. Volatility is likely to linger this week, with broader financial market concerns likely to remain at the forefront. In addition, we have the FOMC meeting this week, which adds further uncertainty to markets. External developments and a softer supply & demand balance have led us to cut our price forecast last week. While we still expect the market to trend higher over the course of the year, $100/bbl plus Brent is less likely.
It shouldn’t come as too much of a surprise that there was significant liquidation in oil from speculative longs over the last reporting week. The latest positioning data shows that speculators cut their net long in ICE Brent by 64,907 lots to 233,384 lots as of last Tuesday. This move was predominantly driven by longs liquidating - 49,465 lots sold - although 15,442 lots of fresh shorts were also added. Given that the sell-off in the oil market has continued since last Tuesday, current speculative positioning is likely even smaller.
While the crude oil market has come under pressure over the last week, refined products have held up better. Refinery margins have strengthened over the week with most cracks moving higher. The scale of the sell-off in crude oil explains some of the strength in refinery margins, but continued strike action in France, which is affecting energy infrastructure, including refineries, will also be providing some support to the products market.
Read next: Dollar funding solutions get beefed up| FXMAG.COM
The second batch of Chinese trade data released over the weekend shows that middle distillate exports over February increased further YoY. Diesel exports in February totalled 2.15mt, up about ten-fold YoY, whilst jet fuel exports came in at 1.31mt, up almost 96% YoY. These gains were not unexpected, given the increase in export quotas, and have helped to ease tightness in middle distillates. However, how these flows evolve through the year will really depend on how strong a recovery we see in domestic demand. Meanwhile, LNG imports in February came in at 5.21mt, up 8.2% YoY. This leaves LNG imports over the first two months of the year at 11.12mt, down 11.9% YoY.
|