Summary
The crude oil market was rangebound and directionless in the past week, mostly stemming from the low liquidity associated with the US Thanksgiving holiday period. Price action initially came off by $2 on 25 Nov in response to the ceasefire agreement between Israel and the Lebanon-based Hezbollah, which diminished geopolitical risk. The market is also in a wait-and-see mode ahead of the OPEC+ meeting, which was delayed until 5 Dec. The group is largely expected to delay the return of barrels, indicating their support for higher prices instead of market share. Price action in the Feb’25 Brent came off from $74.50/bbl to $72.50/bbl on 25 Nov before largely rangebound between the $72 and $73/bbl range for the rest of the week.
Since mid-September, a symmetrical triangle has formed for the front-month Brent futures contract, with price action consolidating in the lower $70s level. Price volatility is, therefore, low, with Bollinger Bands subsequently narrowing. Although price action lacks clear direction, current trends may be a prelude to a volatility breakout in either direction.
Similarly, LS gasoil’s price volatility has been unremarkable. Bollinger Bands remain narrow, the RSI indicates neutral, and the MACD shows weak and bearish momentum. Meanwhile, the gasoil crack is under pressure, with the Feb’25 futures crack falling by $2 down to the mid $16s, where it found better support. The 420kb distillates build indicated by EIA stats may have added further pessimism to gasoil.
The WTI/Brent swaps forward curve weakened over the week, especially in the front, where boxes moved into contango. In the front spread, a potential double top pattern may be formed, which could be a prelude to a further widening of the spread. The Brent futures forward curve shifted lower following the ceasefire agreement between Israel and Hezbollah, although spreads were relatively rangebound. In the crude oil ETFs, market activity was quiet due to the Thanksgiving period. Sentiment indicators were mixed, as the net delta volumes in the USO and UCO were generally bullish, though their put-call open interest ratios also increased, indicating that participants are getting bearish from a risk deployment perspective.
