Turning the vol down
Over the week to 13 May, front-month Brent futures rallied to $66.55/bbl, their highest level since 28 April. ICE COT data for that week shows money managers added nearly 50 mb to their net long position, taking it to 145.2 mb, the strongest since the week ending 8 April. Since then, prices ran into resistance and softened to $65.95/bbl at the time of writing on 19 May. Momentum indicators such as the MACD histogram remain positive, though both historical and implied volatility on the M1 contract are declining. We therefore expect a narrower trading range this week, with Brent likely to finish between $65 and $67/bbl by the end of the week.
We recommend keeping an eye on the following drivers of oil prices this week:
- Back-and-forth in US-Iranian negotiations
- Weaker economic data
- Uncertainty on oil demand growth
Over the past weekend, US special envoy to the Middle East Steve Witkoff reiterated Washington’s stance that a nuclear deal between the US and Iran must involve an agreement for the latter to end all plans to enrich uranium. In response, Iranian Foreign Minister Abbas Araghchi said, in a post on X, that Iran is ready to achieve a solution that will ensure that it doesn’t have nuclear weapons, although enrichment will continue “with or without a deal”. The optics of a long-awaited nuclear deal between the US and Iran would pressure oil prices, considering that Iranian crude oil supply averaged 3.5mb/d in April 2025, as per Petrologistics data, reaching its highest level since September 2024. Interestingly, however, Iranian crude oil exports stood at 1.7mb in April 2025, circa 500kb/d below a pre-US sanction average of 2.2mb/d. Hence, while a nuclear deal would entail a removal of Iranian crude sanctions, the downside risk to this may be less severe than expected.
On the demand end, Moody’s downgraded the US sovereign credit to Aa1 from Aaa due to ballooning national debt and interest costs, as expected, being the final of the three major credit agencies to do so. The effects of this were transient, with long-term treasury yields climbing this morning before easing into the day. Interestingly, we also saw a shake-up in US equities alongside a softer US dollar, suggesting a possible capital outflow from US assets amid the rising uncertainty. While a softer dollar historically supports the dollar-denominated oil, this correlation has been inconsistent lately, having recently flipped to a small positive correlation instead. Meanwhile, China’s retail sales increased by 5.1% y/y in April (exp: 5.6% y/y) compared to 5.9% y/y in March. Industrial production in April also softened m/m, although this decline was expected in light of the US-China trade war into April. This weak data comes despite the Chinese government’s stimulus measures at the end of last year and may pressure oil demand from the world’s second-largest oil consumer.
Further uncertainty regarding global oil demand emerges from the IEA’s recent Oil Monthly Report. The IEA projects global oil demand growth to slow down from 990kb/d in Q1’25 to 650kb/d for the rest of 2025 amid economic headwinds and record EV sales. On the other hand, OPEC+’s global oil demand growth forecast currently sits at a more optimistic 1.3mb/d y/y, underscoring the uncertainty in near-term fundamentals.
