Finding a floor?
The M1 Brent futures contract fell sharply in August, breaking below the 100-day moving average on 5 Aug, before finding support around $65.50/bbl. Market sentiment remains unsettled amid Washington’s pressure on New Delhi to reduce its purchases of Russian oil. However, India has signalled it won’t stop buying Russian crude. Instead, it has put its plans to purchase arms from the US on hold, with Indian Prime Minister Narendra Modi vowing to “further deepen” ties with Moscow. At the time of writing, the M1 futures contract is hovering at $66.50/bbl, and we expect it to rise to test the 100-day moving average this week, which currently sits at $67.86/bbl. Thus, we anticipate prices to end this week between $65 and $68/bbl.
Three key drivers of price action we recommend monitoring this week include:
- US-Russia talks in Alaska
- Saudi Arabian crude oil allocations to China
- Net positioning in ICE Brent futures
US President Donald Trump is set to meet with his Russian counterpart, Vladimir Putin, in Alaska this Friday to negotiate an end to the Russo-Ukrainian war. A successfully negotiated ceasefire deal will likely include loosening sanctions on Russian oil and oil products, which would significantly pressure oil prices. Moreover, secondary sanctions on buyers of Russian crude, such as India, could also be removed, adding to the bearish optics. Nevertheless, any negotiated ceasefire deal would also require Ukrainian President Volodymyr Zelenskyy’s approval, which may be difficult. For one, President Trump has said that the negotiation may involve “some swapping of territories,” which President Zelenskyy has firmly opposed, stating that “Ukrainians will not give their land to occupiers.” Moreover, considering the absence of any EU nations at Friday’s meeting, should they not agree to a ceasefire deal proposed by President Trump, they may keep a tight grip on their sanctions on Russian crude oil and refined products made from this oil.
In other news, Saudi Arabian crude oil allocations to Chinese refiners have declined from 51mb in August to 43mb in September. However, average allocations across both months sit at 47mb, which aligns with levels seen in May and June 2025. Thus, we expect refiners may have front-loaded their September barrels in August, anticipating higher September OSPs amid a steeper backwardation in the M2/M4 (then, Sep/Nov’25) Dubai swap at the end of July. Similarly, this backwardation in the M2/M4 (now, Oct/Dec’25) swap sits at $1/bbl, which technically indicates a decline in next month’s OSP, further reflecting that the relative decrease in the September allocations is more a product of the Dubai forward curve rather than a shocking drop in demand. For instance, CDU operating rates in Chinese state-owned refineries stand at 86.45%, as per JLC, well above seasonal averages. While CDU operating rates at independent refineries are lower, they remain in line with levels seen last year in independent refineries at 63.8%.
Finally, moving to positioning changes in ICE Brent futures, ICE COT data for the week ending 5 Aug highlighted a removal of both long and short managed-by-money positions in Brent futures. However, a more significant decline in length shed nearly 20mb from speculative net long positioning to 230mb, bringing positioning back to levels from a fortnight ago. Flux Insight’s more timely CTA net positioning model shows a further trim of length, pressuring CTA net long positioning down from 96 lots on 5 Aug to 14.5k lots on 8 Aug. However, based on Flux Insight’s CTA positioning index, which converts this positioning data into a standardised percentile-based score, CTA positioning is now approaching its long-term average, which may provide a floor to the recent selling. Technically speaking, the $65/bbl handle has been a significant support level for the M1 Brent futures since April 2025. Moreover, the Ichimoku lag line is now within the cloud, which may provide further psychological support to the contract.
