Brent crude mostly traded sideways from late August to mid-December, before then rallying by ~15% to a peak of $82.63 on 15th January (fig 1a). Since then, though, it has retraced about 1/3rd of that gain. Recent weakness, as some suggest, stems from renewed efforts by Trump to influence global oil markets (by calling on OPEC to “cut oil prices”).
Trump, no doubt, has some influence. This weekend he used the threat of tariffs to push Colombia into a deal (on accepting undocumented immigrants). He may attempt something similar with certain OPEC nations (i.e. to influence oil production/prices). Currently, though, his key strategy is to increase domestic US supply, by issuing leases to drill on Federal land. As we’ve shown in prior research, though, leases do not drive/influence oil production (which is principally determined by the economics of drilling, see recent Longview research for full analysis).
In the near term, positioning and sentiment offer a better lens through which to think about the oil price outlook. Of note, our market timing model for oil, which aggregates several key inputs, has recently switched back to SELL. This model has generated timely signals at key turning points in recent years (fig 1). The key inputs/drivers of the recent SELL signal include bullish sentiment readings, as well as more bullish speculative positioning (e.g. using a deviation from trend measure, see fig 1b). The market is therefore primed for further downside. Trump policy announcements may be a trigger.
Fig 1: Brent oil market timing model vs. oil price (US$/barrel)
Fig 1a: Brent oil price futures candlestick, shown with 50 & 200 day moving averages (US$/barrel)
Fig 1b: Brent oil net speculative positions (deviation from trend) vs. oil price (US$/barrel)
