Summary
Last week, Brent futures slipped in the first half of the week and the market priced in an Israel-Hamas ceasefire, which did not materialise. Prices were then supported as the Fed meeting in Jackson Hole some dovish hope into the market. Federal Reserve Chair Jerome Powell emphasised the need to support a strong labour market and acknowledged the unmistakable cooling in labour conditions. He indicated that the time has come for rate cuts, with the pace and timing to be guided by economic data. This, alongside a flare-up in Hezbollah and Israel relations there were rockets fired and this may have added some geopolitical risk too.
In the week ending 23 Aug, USO options saw fluctuating flows, with larger volumes of net selling on 19 Aug and 22 Aug, driven by bearish strategies like buying vertical puts and selling calls, largely from institutional-sized trades involving significant notional amounts. In contrast, UCO had a more risk-on profile with net selling flows dominating, except on 21 Aug when call buying led to a net positive equivalent of 42k shares of stock, while SCO predominantly experienced net buying, especially on 19 Aug, driven by call buying and professional trades getting long 13k deltas.
Looking at technical indicators, the Brent futures, ICE LS gasoil futures and NYMEX RBOB futures all lie within the bounds of neutrality based on both the RSI and the Bollinger bands. OI in Oct’24 Brent fell by over 120mb in the week, and interest in RBOB was quite flat at around 120mb, combined with the heavy sell-side positioning in US gasoline, this could suggest a short-side saturated market. ICE gasoil has seen increasing OI as prices have been rangebound could point to a breakout soon.
A correlation analysis highlights RBOB cracks becoming more correlated with the crudes which could indicate the impact of external factors, driving prices. CTA positioning points to CTA selling driving price action recently so this would likely lead to a supported correlation.
The WTI/Brent forward curve saw modest gains, particularly in the later months like Jan’25, which rose 13c/bbl, spurred by dovish Fed comments. The 12-month Brent swaps curve shifted uniformly lower week-on-week, with front futures flies like Oct/Nov/Dec inching up 1c to 26c/bbl and Oct/Jan/Apr softening before improving to $1.04/bbl on 23 Aug.
