Welcome to the pilot episode of Oil Insights, hosted by Harry Tchilinguirian, Head of Research at Onyx, alongside co-hosts Martha Dowding and Vincent Wu, Research Associates at Onyx.
The oil market has been on a wild ride in the past week and change, selling off violently amidst unwinds in other classes, notably FX and the Yen carry trade. The risk-off mood across risky assets did, however, stabilise, with oil back above $80/bbl. The VIX index, the volatility indicator of the S&P 500, a measure of nervousness, has retraced more than half of its spike of 5 August, indicating some of the jitters of last week have subsided, even as more position unwinds are expected, albeit smaller in amount now.
Onyx's CTA net positioning model indicates that short positions have potentially ‘bottomed out,’ signalling a return to an uptrend. CFTC data highlights that short positions remain exceedingly high in Brent futures, with shorts increasing at the fastest pace since the post-OPEC meeting. The long-to-short ratio in Brent is currently at 1.09:1.00, placing it in the 1st percentile—a level not seen since March 2020.
Additionally, we’re observing significant refiner selling across September, October, and the September/October DFL period, with fund selling in August/September DFL. In the CFD market, our data suggests that last week’s buying flows have transitioned into selling. While September’s structure has been well supported, the rally may have peaked at these levels, leading to profit-taking flows.
Rather than delving into a single story for our Googling Oil segment, the research team focuses on a prevailing theme in the oil market: the growing mention of Iran in numerous articles, driven by resurgent geopolitical tensions.
Over the weekend, Iran reiterated its intention to retaliate against Israel amidst a buildup of US military assets in the Middle East, including F22 fighter jets and a submarine equipped with guided missiles. As Martha explains, the last time we witnessed a similar scenario was in mid-April. During that period, we observed a range-bound price action lift leading up to an attack, a two-week delay and then a relaxing in crude futures.
This week's most interesting product is gasoline, with the summer driving season entering its final weeks. The weekly US data may underestimate demand, but the money managers are extremely short. The market seems vulnerably short, but will there be a spark to drive it higher?
