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Drop in speculative net longs in Brent; MENA region fiscal breakeven oil price rises


Net managed money futures and options positions on the ICE in Brent, regarded as the most directionally driven speculative category, dropped 13.1%, or 13,456 positions to 89,088 positions, in the week ended 12 November (Figure 1). Total Open Interest for futures and options dropped 3.2% WoW. Over the same period, Brent gained USD 0.48/bbl WoW to USD 105.81/bbl.

On the other side of the Atlantic, net managed money futures and options positions on NYMEX in WTI dropped 4.3%, or 10,117 positions, to 223,733 positions, the lowest in almost five months. WTI closed the week ended 12 November marginally lower, down USD 0.33/bbl WoW to USD 93.04/bbl, with the discount to Brent widening to USD 12.77/bbl. The WTI discount to Brent has since widened further to over USD 14/bbl.

The IMF published its Regional Economic Outlook for the Middle East and Central Asia. For oil exporters in the MENA region, the IMF forecasts a reduction in the GDP annual growth rate to 1.9% in 2013 (versus 3.2% per the May Regional Economic Outlook Update), from 5.4% in 2012. The cut was attributed to renewed disruptions oil production in Iraq and Libya, falling Iranian oil exports, as well as reduced production from Saudi Arabia. The IMF expects regional oil production in 2013 to fall for the first time since the 2008 global crisis. For 2014, the IMF forecasts GDP to grow 4.0% YoY on the back of a recovery in oil production and further growth of the non-oil economy.

The IMF forecasts an aggregate fiscal surplus of 4.2% of GDP in 2013 for MENA oil exporters. However, as the organisation cautions, this statistic ‘masks underlying vulnerabilities’. For the majority of MENA oil exporters, the IMF sees the 2013 and 2014 fiscal breakeven price of oil above USD 90/bbl at forecast production levels (Figure 2). The IMF expects half of the MENA oil exporters would be unable to balance their budgets and concludes that the majority of oil exporters are not saving enough for future generations.

On average, excluding Yemen, the IMF has the fiscal breakeven oil price rising to USD 96/bbl in 2014 (versus USD 94/bbl in 2013).

Colin Smith, Marc Jacouris
VTB Capital analyst

oil, USA

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