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Brent Bracing for Bears?

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In Brent, May prices strengthened slightly over the past week with the RSI also showing signs of upward momentum as it crossed overbought territory on Feb 22, at 79. The May RBOB contract traded within Bollinger band although the RSI crossed overbought territory, sitting at 71 on Feb 22. Gasoil on the other hand is well in neutral territory as prices initially came off to retrace higher towards the end of the week.

The correlation between crude and gasoil cracks was stronger this week, whilst RBOB cracks also registered an increase in correlation with crude and the remaining product cracks on Feb 22.

The WTI/Brent spread narrowed w-o-w perhaps over softening freight and increasing Midland availability. Brent structure saw a downward shift this week on the back of weakness in flat price.

In the latest CFTC data for the week to Feb 20, speculators in Brent were more bearish amid a rise in longs being offset by a larger rise in shorts. WTI, by contrast enjoyed a more bullish stance this week amid an increase in net positioning by over 23mbbls.

The EUR/USD saw an increase in long positions this week whilst the USD/JPY and GBP/USD registered an increase in short positions by 6% and 9%, respectively. Furthermore, while length was added in the USD/JPY, the GBP/USD saw a 5% decline in long positions.

In the week to Feb 23, M2 refinery margins continued to weaken, with gasoil seen leading the bearish trend as the Apr NWE gasoil crack slumped by 5.2% on Feb 23, week-on-week.

ETF flows were showing a strong risk-off sentiment across the board over the past week with an overall 24% drop in open interest in USO, UCO, and SCO. USO seeing bearish flows especially in the the options currently near to expiry signals a bearish sentiment for Brent in the next weeks.

In US equities, the S&P and NASDAQ indices rose by 1.4% and 1.7%, respectively. However, other relevant indices point that this strength may not be reflective of the US economy.

The volatility skew in May Brent and WTI highlights a rise in volatility across the crude complex. However, seeing that the volatility skew is higher for delta puts than delta calls, we gauge that players are perhaps taking on a bearish view of crude and are thus more interested in protecting themselves from downward price action.

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    Our team of skilled analysts, by utilising the depth and breadth of Onyx's proprietary data, position ourselves at the cutting edge of market analysis. This unique vantage point grants us an unparalleled perspective in the market, enabling us to identify emerging trends and lucrative opportunities.