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Sentiment in oil markets remained very bearish for most of 2024 amid fears of weakening global demand, weak Chinese economy and a potential oversupply in 2025. Commodity analysts at Standard Chartered continuously reiterated their bullish stance, arguing that the extreme bearishness was unwarranted. Well, StanChart appears to have been vindicated, with oil prices trading above $80 per barrel for the first time since August.
Lately, prices have pulled back a little due to the uncertainty of energy policies under Trump. And now StanChart has reported that the bulls are returning to oil futures markets. According to the experts, money managers have added a significant amount of length to the market in recent weeks. StanChart’s proprietary crude oil money-manager positioning index has climbed 19.7 points to a six-year high of +41.3, with longs across the four main Brent and WTI contracts increased by 43.8 mb w/w to 677.7 mb compared to an increase of 11.8 mb in short positions to 192.3mb. The net long has now increased by 339.8 mb since the end of October, an average rate of 4.4 mb/d.
StanChart notes that the size of the net long is still less than the average net long over the past five years (408.3 mb) and close to the average over the past two years (308.4mb). However, the rapid rate of increase in the net long over the past two months seems out of kilter with the fundamental views of most of the largest funds. The analysts say this can be chalked up to the big traders beginning to accept that the 2025 outlook was not as grim as previously thought, although they have not yet switched to a belief that the market will tighten significantly. This suggests that a lot of the new length is short-term tactical and would need a constant flow of positive news to maintain the positive momentum.
Meanwhile, the latest Baker Hughes survey has revealed that U.S. oil drilling has declined dramatically to just one rig above its post-pandemic lows. Active oil drilling rigs fell by two w/w to 478 in the latest survey, leaving activity just one rig above its post-pandemic low; 149 rigs below November 2002’s post-pandemic high and 73 rigs lower than at the time of President Trump’s 2017 inauguration.
The rig count has been in a downwards trend for over two years, with companies’ strategies remaining relatively conservative and productivity gains allowing output growth with fewer active rigs. Commodity experts at Standard Chartered have predicted that drilling will remain subdued in 2025, primarily because oil prices remain too low in real terms to justify expansion during a period of significant cost inflation. According to cStanChart, U.S oil production, and particularly unconventional (shale oil) production, has changed significantly from the time Trump first took office in 2017.