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The mood in the oil market has changed rapidly in recent months (from bullish to bearish).

That is, at the start of the year, there were plenty of reasons for optimism. OPEC+, for example, had once again delayed reversing its ‘voluntary production cuts’ (i.e. by another three months) and, in mid-January, Biden announced a new round of sanctions on Russia. All of which, at the time, was a key reason for ongoing oil price strength. Reflecting strong optimism, therefore, long positioning was relatively crowded and oil prices became over-extended to the upside (for detail see Longview Market Positioning: “Oil: Primed for a Drawdown?”, published 27th January 2025).

As of today, though, that narrative has reversed. OPEC has confirmed they will bring back supply (unwind their production cuts) and there’s a good chance that the Russia-Ukraine war may end (and fully re-open Russian energy markets to the world). That bearish news flow, though, appears to be in the price (e.g. with oil down 17% since mid-January, see FIG 1). Consistent with that, oil market indicators are now generating a clear BUY message. Sentiment, for example, is relatively bearish (FIG 3); LONG positioning has unwound (FIG 5); and portfolios are well protected against further oil price downside (FIG 4). Summarising many of those signals, our oil ‘market timing model’ has moved back to BUY (FIG 2). Oil, therefore, is poised to rally over coming weeks and months. 

Lots of macro factors are, though, at work. Tump’s agenda, for example, to “drill baby drill”, bears watching closely (with various geopolitical factors feeding into that equation). Elsewhere, the US may decide to refill its Strategic Petroleum Reserve (SPR) at some point (historically it’s done that at $67). Added to which WTI oil prices are only $5/barrel above US shale breakeven prices (of $62). Below that level the market is likely to (start to) generate a supply response.

Fig 1: Brent oil price futures, with 50 & 200 day moving averages (US$/barrel)

1-Mar-17-2025-12-00-56-8935-PMFig 2: Brent oil market timing model vs. oil price (US$/barrel)

2-Mar-17-2025-12-01-12-5006-PM

Fig 3: Brent oil CONSENSUS Inc. sentiment vs. Oil price (USD/barrel)

3-Mar-17-2025-12-01-28-3675-PM

Fig 4: WTI ‘puts LESS calls’ (20 day smoothed) vs. WTI oil price (USD/barrel))

4-Mar-17-2025-12-01-43-3508-PM

Fig 5: Brent oil net speculative LONG/SHORT positions vs. oil price (US$/barrel)

5-Mar-17-2025-12-01-58-9653-PM

 

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