What is the Path of Least Resistance for Oil Prices?

The path of least resistance for oil prices from here is higher.

That’s what analysts at Standard Chartered Bank, including the company’s commodities research head Paul Horsnell, think, a report sent to Rigzone by the Standard Chartered Bank team late Tuesday revealed.

The analysts noted in the report, however, that “there is likely to be a period of significant trader confusion before they lock on to the three key factors that should create an upwards trend”.

“Namely, one; non-OPEC+ supply is under-performing and U.S. supply is likely to fall, two; short- and long-term demand are far more robust than consensus believed, and three; OPEC+ policy is becoming increasingly proactive, with the background of a sustained campaign by key members to increase the effectiveness of the organization,” the analysts added.

In the report, the analysts stated that, “on the surface, one could conclude that the oil market has already lapsed into a summer torpor”.

They said front-month Brent has generated little excitement over the past week, pointing out that it was “unchanged week on week, settling at $69.21 per barrel” and highlighting that the last six daily settlements “have all been in a $68.52 – 69.52 per barrel range”.

“Volatility is declining; for example, 30-day realized annualized Brent volatility has fallen by 10.5 percentage points week on week to 39.4 percent and options markets have moved from marked nervousness about the upside manifested in a call skew to modest bearishness shown in a limited put skew,” the analysts said in the report.

The Standard Chartered Bank analysts stated in the report, however, that, despite the overall somnolent air, there are some more discordant data points and intimations of instability.

“Money-manager positioning provides one such set of instability red flags,” the analysts highlighted in the report.

“Our crude oil money-manager positioning index for the main WTI contract indicates a high degree of bearishness at -75.7, a week on week decline of 35.0. In sharp contrast, the money-manager positioning index for the main Brent contract shows modest bullishness at +29.3, a week on week increase of 6.2,” they said.

“This is the third week in a row that the Brent and WTI positioning indices have moved in opposite directions; there were no such three-week runs in either 2023 or 2024. Over the past two weeks alone, money managers have cut net longs in WTI by 82.9 million barrels (mb), while money-manager net longs in Brent have increased by 72.3mb,” they added.

“The data, and discussions with participants, imply to us that there is a high degree of confusion among traders; while the majority feel they should be doing something, there is little consensus as to precisely what they should be doing and what they should be reacting to,” the analysts stated.

“U.S.-based traders appear to [be] more bearish than Europe-, Asia- or Middle East-based traders but are more likely to follow general asset markets and concentrate heavily on tariff deals and FOMC leadership news flow,” they continued.

Outside the U.S., the confusion seems to be more about oil market fundamentals, the analysts said in the report.

“On the one hand, many traders appear to believe that the rolling back of OPEC+ voluntary cuts has revealed significantly less spare capacity than they previously thought; but on the other hand they worry that this revelation has come from greater short-term supply which they fear could unbalance the market early next year,” they noted.

“That leads to the question of how to price a market that has less spare capacity but might have looser balances; views on this issue have yet to crystallize fully,” they pointed out.

Standard Chartered Bank’s report shows that the company expects the ICE Brent nearby future crude oil price to average $65 per barrel in the fourth quarter of this year and $61 per barrel overall in 2025.

Rigzone has contacted the U.S. Department of Energy and OPEC for comment on Standard Chartered Bank’s report. At the time of writing, neither have responded to Rigzone.

To contact the author, email andreas.exarheas@rigzone.com