The oil market remains well supported as the November ICE Brent contract expires on Friday at $95.31 per barrel, causing the oil market to end the third quarter up just over 27%, its higher performance from the first quarter of 2022. Fundamentally, there are still more upsides as the market will continue to narrow. Technically, after the November contract expires on Friday, there is a gap that the December contract will have to fill. This suggests that at some point we should see the December contract (currently trading around US$92.45/bbl) trading above US$95/bbl.
The latest positioning data shows that speculators reduced their net long position in ICE Brent by 21,989 lots during the last reporting week to 243,542 lots. This was mainly due to new short positions. Some long positions were also liquidated, suggesting speculators believe the oil market rally has largely lost steam. However, there was more speculative buying in NYMEX WTI and speculators increased their net long position by 20,123 lots to 314,519 lots. Furthermore, speculators also increased their spread position by 49,525 to 478,407 lots. The drawdown of US crude oil inventories, specifically at the WTI delivery hub of Cushing, appears to have attracted speculators to the market and, in particular, to the near time spreads.
For the oil market this week, much attention will be paid to the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting on Wednesday. The market will be eager to see if there are signs of a change in the group’s production policy, given the recent strength of the market. We do not believe that the group is going to change its production policy. However, what is possible (and a JMMC meeting is not necessary for this) is for Saudi Arabia to begin easing its additional voluntary supply cut of 1 million barrels per day. The Saudis have said there is still concern about Chinese demand. However, PMI data released over the weekend will provide some confidence, as China’s manufacturing PMI will return to expansion territory in September for the first time since March, while non-manufacturing PMI remained in expansion territory for the month.