CO1 closed above $87 for 1st time since Apr 30; upside is still substantial
July 3, 2024
Key Observations:
Three months ago, commercial hedgers and institutional investors shared comparable views on the risk outlook in ICE Brent crude oil. We assess that on Mar 26 collective positioning of hedgers was neutral at 0.51, while investors leaned mildly bullish at 0.59 (Obs. #1 in chart).
By end of June, risk positioning between these two groups could scarcely be more divergent. Investor confidence collapsed, producing the most bearish RPI scores for this group in the past 15 years. By contrast, consumers eagerly scooped up futures contracts shed by investors at M1 prices below $85 per bbl in a backwardated curve. Meanwhile, producers had scant interest in locking in these strip prices for their own hedging programs. In 2Q2024, average prices were $81.85 per bbl for Dec-24 ICE Brent (COZ4), $79.07 for Jun-25 (COM5), and $76.99 for Dec-25 (COZ5).
By June 25, the net result was RPIs at 0.91 for the commercial hedgers and 0.08 for the institutional investors (Obs. #8). Equity investors should understand that this trading in ICE Brent derivatives suggests both oil producers and oil consumers expect higher oil prices in 2H2024 and 2025 than feared by investors.
This discrepancy echoes one we spotlighted last week in the ICE gasoil market (Diesels: Investors Start To Heed Commercial Expertise, 24-Jun-2024). Since that note, the RPI score for investors in ICE gasoil has moved from 0.41 to 0.56, for the strongest RPI in ten months.
Source: ICE, Blacklight Research.
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