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Third consecutive record high in speculative positions on Brent


Net managed money futures and options positions on the ICE in Brent, regarded as the most directionally driven speculative category, jumped 11.4%, or 23,649 positions, in the week ended 27 August, to a third consecutive record high of 231,962 positions. Total Open Interest for futures and options gained 4.3% WoW. Over the same period, Brent rose USD 4.21/bbl WoW to USD 114.36/bbl.

On the other side of the Atlantic, net managed money futures and options positions on NYMEX in WTI broke the recent trend of declining positions, gaining 14,761 positions (+4.9%) WoW to 317,523 positions. Total Open Interest for futures and options on WTI was unchanged WoW, remaining close to all-time lows. WTI also rose in the week of 27 August, up USD 4.21/bbl to USD 109.01/bbl. The WTI discount to Brent had widened slightly WoW to USD 5.35/bbl on 22 August, from USD 5.19/.bbl in the week before.

Subsequent to the reporting period of the above reports, Brent traded as high as USD 117/bbl before slipping to USD 114/bbl territory. In our view, the oil price reacted to the heightened threat, and its subsequent ebbing, of an attack by Western forces on Syria in response to alleged atrocities by the Assad regime.

On the physical side, a stream of news on the dire state of Libya’s oil production has supported oil prices. Production in Libya might have fallen below 200kb/d as a result of disruption from strikes and other disruptive action, according to officials from the national oil company (NOC), while August production might average as low as 640kb/d, in stark contrast to the 1.4mmb/d the nation was producing through 2012 and up until April. However, reports suggest that Saudi Arabia ramped up production in August. A Bloomberg survey puts total OPEC production in August up 0.1mmb/d MoM to 31.0mmb/d, on an upwards revised July figure. The survey has Saudi production up 150kb/d MoM to 9.95mmb/d, while the UAE and Nigeria are also seen to have increased production, by 120kb/d and 100kb/d respectively. If confirmed, we would expect the increase in OPEC production to help provide some offset to current pricing pressure from events in Syria and Egypt. Our forecast is for Brent to average USD 106/bbl in FY13, but the risks of a higher outturn have risen given recent events.

Colin Smith, Marc Jacouris
VTB Capital analyst


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