Brent has seen an aggressive move to the upside since the recent closing low point of USD 89.23/bbl on 21 June. Since then, the front month price has jumped almost USD 14/bbl to over USD 103/bbl. In addition, the curve has again become sharply backwardated (front months higher than forward months), which is typically indicative of physical tightness in the market.
The latest IEA data suggests that European markets tightened again in May from already low levels so the upward pressure on Brent might be grounded, at least partly, in that inventory tightness, exacerbated by the industrial action which took out around 15% of Norway’s production from 24 June. However, the Norwegian government ordered a return to work amidst compulsory arbitration a week ago.
Certainly, a look at non-commercial net futures and options positions in the Brent market does not indicate a lot of confidence that the recent run would be extended. While net speculative length increased for two weeks to 3 July, positions were sold off during the week to 10 July. That was most notable for the managed money component, often considered the most directional, which, following a 58% surge in net positions in the week to 3 July, saw an 8% drop the following week as short positions increased sharply.