Oil is sharply higher following a week that was bumpy for crude prices thanks to OPEC+’s forward guidance on the return of some barrels to the market; yet a key reason behind the rebound has nothing to do with fundamentals and everything to do with technicals: as Bloomberg's Alex Longley notes, positioning figures suggest Brent’s selloff may well have reached its peak.
As shown in the chart below, the steep drop in oil prices at the start of last week was driven by the biggest weekly decline in net-bullish wagers on Brent since ICE began publishing the data over a decade ago — a clear sign of the surge in bearish sentiment and the extent of the technical selling that pressured crude. There was also a large decline in the same figure for US diesel futures.
Yet oil bulls will tell you that despite the relatively lackluster physical market, things should get better over the summer as consumer fuel demand picks up. Indeed, as Longley notes, key timespreads that gauge market health have also shown signs of bottoming out over the last week or so.
With positioning generally overextended to the bearish side (the data are up until last Tuesday, so the recovery in prices from the lows would already suggest some of the bearishness will have faded out), there’s reason to think that oil’s sluggishness is finally nearing the end.
