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In a new report sent to Rigzone on October 3, analysts at Standard Chartered looked at the Brent oil price drop that occurred earlier this week, which they highlighted saw the commodity fall below $90 per barrel at one point.
“The November Brent contract expired on 29 September at $95.31 per barrel, a rise of $2.04 per barrel in its final week of trading,” the analysts noted in the report.
“The expiry of November left a large gap on the technical charts, with the November-to-December spread having pushed above $1.50 per barrel on 26 September and above $2 per barrel the following day before expiring above $3 per barrel,” they added.
“However, rather than starting to fill the chart gap, December Brent (the new front-month) swiftly retraced, settling $1.17 per barrel lower week on week at $90.71 per barrel on 2 October, before falling below $90 per barrel in early trading on 3 October,” they continued.
In the report, the analysts stated that some of the recent pressure has also come out of WTI spreads.
“The December 2023- to-December 2024 spread settled at $10.83 per barrel on 2 October, lower just $0.26 per barrel week on week but well below the 27 September peak of above $14 per barrel,” they said.
The analysts highlighted in the report that they do not think recent price dynamics carry much in the way of new information.
“We see this as a burst of volatility in a market where volatility was too low combined with end of quarter rebalancing effects and the stopping out of some of the most recently added and least committed crude oil longs, particularly among the momentum followers,” the analysts said in the report.
“Our Brent average forecast for Q4 remains $93 per barrel. While we have maintained this forecast for the past 15 months, we think our projected supply and demand balances for Q4 support it,” they added.
“Given our fundamental forecasts, we do not expect dips below $90 per barrel to prove sustainable,” the analysts went on to state.
Also in the report, the Standard Chartered analysts noted that a week containing an end of quarter, including expiring contracts and high backwardation, represents fairly challenging conditions for SCORPIO, the company’s newly launched machine learning oil price model.
“Its forecast last week was for a $2.10 per barrel increase from 25 September prices, which would take the November Brent contract to $95.39 per barrel, just $0.08 per barrel higher than where it expired,” the analysts said in the report.
“However, the sharp falling away of the December contract on 2 October left that contract $1.17 per barrel lower week on week,” they added.
For the next week, SCORPIO implies no week on week change in prices, the analysts highlighted in the report.
“While technical indicators are strongly positive ($1.77 per barrel), the overextension of speculative length (-$0.86 per barrel) and dollar strength (-$0.46 per barrel) still weigh on prices,” they analysts added.
In a report sent to Rigzone last week, Standard Chartered revealed that it was launching a machine learning model for near-term Brent price forecasting. Dubbed SCORPIO (Standard Chartered Oil Research Price Indicator), Standard Chartered described the new launch as a proprietary tree-based model designed to generate a forecast for Brent crude spot prices on a one-week timeframe.
In its latest report, Standard Chartered projects that the ICE Brent price will average $98 per barrel in 2024, $109 per barrel in 2025, and $128 per barrel in 2026. In a report sent to Rigzone on September 26, the company forecast that the 2023 ICE Brent price would average $91 per barrel.
According to a separate report sent to Rigzone this week, BMI, a Fitch Solutions company, sees the Brent oil price averaging $83 per barrel this year, $84 per barrel in both 2024 and 2025, and $81 per barrel in both 2026 and 2027.
The Brent crude oil price closed at $95.31 per barrel on September 29, $90.71 per barrel on October 2, and $90.92 per barrel on October 3. It then dropped further to close at $85.81 per barrel on October 4. At the time of writing, the commodity is trading at $86.39 per barrel.
To contact the author, email andreas.exarheas@rigzone.com
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