Summary
The market appears to be stuck in a bout of geopolitical ping-pong between Israel and Iran. Following last week’s decline in risk after Israel attacked Iranian military sites, leaving the country’s oil and nuclear infrastructure unharmed, the Jan’25 Brent futures contract declined to an intraday low of $70.30/bbl on 29 Oct. However, sentiment recovered in the remainder of the week, causing the futures contract to finally break past the critical resistance point of $75/bbl on 04 Nov and trade at $75.25/bbl at the time of writing (12:00 GMT). The Jan/Feb’25 Brent futures spread recovered from an intraday low of $0.30/bbl on 29 Oct to an intraday high of $0.46/bbl on 01 Nov, where it met resistance. This recovery emerged amid Iran threatening to retaliate against Israel’s attack, injecting further risk into the market.
OPEC+ also announced on 03 Nov that they intend to extend their output cut of 2.2mb/d by another month after previously stating these barrels will be gradually brought online from December onwards. The decision appears an attempt to buoy oil prices in the face of rising concerns of oversupply. Oil production in the US shot up to a new high of 13.4mb/d in August 2024. Exxon, in its Q3’24 results, announced a rise of 25% y/y in oil and gas production. Finally, the market will await 05 Nov’s US Presidential election for further certainty on oil sentiment.
Nonetheless, the past week recorded some support for the Jan’25 ICE Brent, ICE LS gasoil and NYMEX RBOB gasoline futures. While longer-term moving averages indicate more stagnant price movements, shorter-term moving averages showcase an improvement in sentiment, with the MACD line now surpassing the Signal line (the MACD line’s 9-day MA).
A correlation analysis highlights a slightly less positive correlation between RBOB and middle distillate cracks, with the RBOB crack noting a little more pressure from crude rising relative to ICE LS gasoil and NYMEX heating oil cracks, with the latter two more positively correlated with Brent than RBOB cracks.
The WTI/Brent swaps structure shifted up this week, maintaining the trend noted over the past few weeks. Interestingly, the 12-month Brent futures forward curve fell w/w, further intensifying the relative support in WTI futures. It will be interesting to see how this support for WTI is impacted by the US Presidential Elections.
Finally, the week ending 01 Nov saw sentiment turn bearish for a number of oil ETF options, largely driven by calls being sold at the start of the week on news of Israeli strikes doing no damage to Iranian energy infrastructure. Although traders ultimately bought calls, they also significantly raised their put open interest this week.
