For the second time in three weeks, net speculative positions appear to have been caught on the wrong side of Brent price moves.
In the week to 24 July, non-commercial net longs in futures and options on the ICE in Brent dropped 15,153 positions (-8.4%) WoW to 164,601 positions with Brent finishing at USD 103.42/bbl on the day. That was just two days before Mario Draghi, President of the ECB, commented that the ECB would do ‘whatever it takes to preserve the euro’ triggering an upsurge in risk appetite that has seen Brent topping USD 106/bbl.
Most of the correction took place in the Swap Dealer and Other Reportables categories, but even Managed Money, the most directionally speculative component of the non-commercials, saw positions ease by 1,172 (-1.5%) WoW to 77,510 positions.
The next set of ICE data might well show positions rising as speculators responded to Draghi’s comments by adding to positions, we expect, which in turn makes the current price level likely quite dependent on just exactly what the ECB will now announce in concrete terms to follow through on the expectations that Draghi’s comments have raised.
Data for OPEC crude production in July are likely to start becoming more widely available from the end of the week, with initial indications that there might have been some easing in OPEC output. However, we expect that OPEC crude production in July is still likely to exceed the call on OPEC crude and to show little change in Saudi output of around 10mmb/d, confirming that it intends to maintain output at high levels while Brent remains above USD 100/bbl amidst uncertainty over the outlook for Iranian production.
Until the current over-supply to the market stops, we expect oil price risks to remain to the downside.