HEAD OF RESEARCH REVIEW
The adage ‘sell in May and go away’ had partial merit last month, as the front-month Brent futures contract initially moved lower, testing below $60/bbl intraday, only to recover and consolidate just below the April average of around $66/bbl. The price moves in May dovetailed with the positioning of risk takers, as the Commitment of Traders data from the ICE exchange showed the net-long position held by money managers declining and then rebuilding with the addition of gross long positions but ultimately falling short of the peak established in early April. Risk sentiment continued to fluctuate in response to tariff developments, as well as a greater focus on longer-dated bond yields. However, the oil market did not always move in sync with equities, notably when bond yields eased. Ultimately, as a storable commodity, the fundamentals of oil supply, demand and inventory changes still hold sway over price, and this was also evidenced in time spreads. While time spreads proved more resilient than flat prices, backwardation in the prompt months was on average weaker in May than in April, and the shape of the curve in general has seen contango now developing from November onwards. Global oil balances, in the minds of many pundits, are expected to weaken substantially as OPEC+ aggressively unwinds voluntary supply cuts against a backdrop of uncertain global oil demand growth in 2025. The flat price is likely to be the first victim of this dynamic, before we see spreads succumb as the curve reflects inventory builds.
