Weekly Oil Trading Report - 4th September to 8th September 2023

Investors double down to force prices up?

Another great week for petroleum products, but relatively less so for ICE Brent.

Many potential investors busy themselves with calculations on just when Saudi and Russian led OPEC+ output cuts will really bite the market giving crude prices little choice but to hit $100 a barrel and beyond.

Most investors are on board with this plan under the not IF but WHEN category and readying themselves for those higher 3 figure crude prices….. was it ever in doubt?

Well, yes it was, regularly in doubt, until Saudi Arabia gripped and re gripped the newsreels with a a battering ram approach to bustle the World into buying oil and that further “ouches”(short selling) are only another comment away! The message being get on board and stop short selling the oil markets lower!!?

Their bullish comments were made significantly when most of the heavy oil trading hitters were assembled together at the APPEC conference in Singapore this week to give most effect!

Meanwhile, those hedge funds who’ve already invested heavily in $90/$100 a barrel crude prices for 2023 on multiple occasions have been painfully dealing with red ink soaked into the profit and loss account for months, but at long last they sense q4 presents a real opportunity as the best time of year to double down on strategy and thinking, after all Saudi Arabia is on side, Russia is on side so it must be time to get big chips back on the table and in theory at least recover the year’s crude losses, it’s appearing to be such a straightforward strategy ….. doubling down is now the number one plan as we can see from the latest open interest positions in ICE Brent options.? Doubling Down is a common phrase used frequently in markets and strategic thinking.

The old school defined it as “a great opportunity to double your losses and lose a whole lot more cash! ” plan.

One 2023 definition is more sophisticated and complex, as it revolves around the psychology of the investor rather than algorithmic or AI type instruction to buy and can be defined along the following lines …..

“When we develop strong emotional ties to our beliefs, our sense of self and identity become intertwined with them — leading us to protect our self-concept by standing firm in our arguments, despite acknowledging their flaws” plan!

It would seem the turgid first 8 months lacklustre futures markets have not dimmed the bulls enthusiasm for those 3 figure crude prices especially after OPEC+ unexpectedly provided manna from heaven in the form of announced extended output cuts on at least 4 occasions in 2023 as they attempted to force prices higher.?

So “doubling down” is the new strategy, it’s like betting on a horse that loses every race it runs but as disappointing as it is you invest again the next time for fear of missing out and the horse making a fool of you by winning when your cash isn’t “riding on it’s back!”

In that sense it’s called “chasing your losses”, “doubling down” seems a less brutal description for getting for trying to recover losses!

Meanwhile despite the market not playing ball all year, (rangebound between $75 and $85 a barrel) we have at last finally reached $90 a barrel but who knows for how long, a simple analysis of the current state of affairs is well researched by Oil Price, the EIA and Rystadt energy which anticipates?total U.S. output will hit 12.61M bbl/day in the current year, eclipsing the previous record of 12.32M bbl/day set in 2019's and easily beating last year's 11.89M bbl/day.

This implies U.S. crude oil output is up 9% Y/Y, which under normal circumstances would blunt OPEC’s efforts to keep supplies low in a bid to goose prices.

There is little doubt the U.S. Shale Patch is largely responsible for keeping oil markets well supplied and oil prices relatively low up to this point. Rystad Energy? has estimated that whereas OPEC and its allies have announced cuts amounting to -6% of 2022's production, non-OPEC supply has made up for two-thirds of those cuts, with the U.S. accounting for half of that.

Meanwhile as bullish as ever StanChart says the sharp tightening shown in most H2 balances is starting to spill-over into physical markets, and oil prices appear set to rise again, so you back your horse and hope for the best, but some forecasters are becoming very predictable!?

Saudi and OPEC+’s consistent talk of output cuts have breathed new life into the $100 forecast. Every sentence they utter flags their ego filled booster pack to the market, all designed to persuade investors to maintain faith in 3 figure crude prices to come in the final quarter of the year and buy now whilst stocks last!

However, we as traders?should stand firm and ask ourselves are we ready to double down and wait for the apparently almost certain big pay day sitting in the distance like a mirage in the desert (we’ve waited 8 months so far what’s a few more weeks between friends?!)?or are we sitting nervously wondering and pondering over whether we love our $90 long position so much we are prepared to go the distance with it or drop it like a hot potato until we can see some facts and figures to support the strong flowing tide of oft repeated bullish talk?

Price volatility in the next two weeks will tell us what investors really believe and we should ready ourselves for anything!?

This week’s closing guide prices :

ICE Brent 90.65 (+2.14)

WTI 87.51 (+1.99)

ICE gas oil 988.75 (+69.50)

Euro Mogas swaps 971.00 (+29.00)

Euro naphtha swaps 689.00 (+15.00)

Nymex gasoline 2.6537 (+5.81 cents per gallon)

LPG swaps 578.00 (+9.00)

Opec basket 92.97

Best regards

Credit: Bob Haynes?- Silvergreen Energy