Since the second week of July 2022, Brent oil prices have been in an 11.6% trading range between $107.60 and $95 reacting to political events and economic readings. OPEC production increased by an average of 648,000 bpd in July’s meeting followed by Biden’s Middle East tour negotiating additional oil supply from OPEC members aside from the latest inflation readings of 9.1% headline inflation in the United States and 8.9% in the Eurozone and trimming projections to 1.9% and 2.9% in 2023 for the US and Eurozone, respectively.
The US GDP annual growth rate expanded by 1.6% in the second quarter of 2022 compared to the same quarter of the previous year yet less by 1.9% from Q1 2022, and it is projected to be 3% by the end of this year; however, on the quarter basis it declined from 6.5% to -0.9% in three consecutive quarters and on the long term, the GDP growth rate is expected to average 2.10% in 2023.
The Eurozone GDP expanded YOY above the 3.4% market forecast to 4% in the second quarter, down from 5.4% in the previous period with a modest increase of 0.5% and 0.7% QoQ 2022. It is also projected that the EU GDP would close the year at 1% and grow by an average of 2% in 2023.
Referring to the OPEC July 2022 report, global GDP is projected to decrease by 0.3% in 2023 to 3.2% from 3.5% in 2022 reflecting on global oil demand growth cut to 2.7 mb/d in 2023 versus 3.4mb/d in 2022, down by 26% lead by OECD countries -1.2 mb/d, the U.S -0.7 mb/d and India -0.2 mb/d. Hedge funds and money managers have decreased their long positions in mid-June due to declining oil prices. Total futured and options net long positions in ICE Brent and NYMEX WTI fell by 10.8% while speculators sold an equivalent of about 53 mb during June.
According to the US Commodity Futures Trading Commission (CFTC), the cut of net long positions was more pronounced in futures and options related to NYMEX WTI, which were cut by 14.1%, while in the week to 21 June net long positions fell to their lowest since April 2020. Meanwhile, speculators were sellers of about 13 mb in the ICE Brent contract in June, and combined futures and options net long positions related to Brent fell by 13,238 contracts, or 6.3% higher, to reach 197,199 lots in the week to June 28, according to the ICE Exchange. This is a combination of a cut in long and short positions. In the week ending 28 June, gross short positions fell by 8,874 lots, or 17.2%, to stand at 42,830 contracts. The long-to-short ratio of speculative positions in the NYMEX WTI contract dropped to 11:1 in the week to 28 June, compared to 18:1 in the week to 31 May. However, the ICE Brent long-to-short ratio rose to 6:1 in the week to 28 June, slightly higher compared to 5:1 in the week to 31 May. Total futures and options open interest volumes on the two exchanges continued to decline in June, falling by 5.1%, or 262,207 contracts, to stand at 4.9 million contracts in the week ending 28 June. The above figures were sentiment indicators for July negative performance where the WTI lost 6.7% and Brent almost 5% while shadowing this sentiment on August performance where both WTI and Brent are trading 7% lower than their open prices.
Assuming central banks would successfully trim down inflation and halted political uncertainties, OPEC forecasted global oil demand growth at 2.7 mb/d in 2023, 0.7mb/d less than 2022’s 3.4 b/d. The first contributor to the 2023 growth projections is non-OECD countries followed by China.
At the time this report is developed, OPEC decided to minimally increase production by 100,000 b/d for September aiming to hold oil prices at sustainable levels. For the first time since the 4th week of November 2021, Brent is testing the 50 exponential moving average on the weekly chart trading near $94 after closing below the upward trend line in the week of July 11, 2022. As per analysts’ view, Brent might trade at $91 (38% monthly retracement) followed by $86 if the current support levels are broken. Rebounding from these levels might drive Brent to trade in a range with resistance at $107-$110. WTI is trading at February 2022 levels, below the 50 exponential moving average of which if broken down, WTI might trade at $83 followed by $75, weekly resistance is at $107-$110. On the other hand, maintaining the current support levels might sustain the long-term uptrend view on the monthly chart which is currently signaling trend weakness for both Bent and WTI since both are trading below the $110 price zone.
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