After a painfully sideways start to the week, the M1 (Oct’25) Brent futures contract has seen an uptick, climbing from the $65-66/bbl corridor to printing at $67.55/bbl at the time of writing on 21 Aug. This support materialised alongside an EIA-reported draw of over 6mb in the week ending 15 Aug. Nevertheless, the M1 (Oct’25) WTI futures contract has remained rangebound around $62-63/bbl. The market continues to hold a short bias in crude, especially WTI futures, with CME managed-by-money net positioning (longs minus shorts) sitting at +48.9mb in the week ending 12 Aug, its lowest level since the week ending 15 Apr. Additionally, ICE and CME net positioning in WTI futures fell below zero for the first time. As bearish as the optics of this seem, we smell a potential overcrowding coming. Technically speaking, the M1 Brent and WTI futures contracts appear en route to forming a rounding bottom pattern, signalling a possible reversal to the upside. Such a reversal would be magnified in a short squeeze in WTI futures. Nevertheless, a great deal of uncertainty remains looming over the oil complex, with limited clarity over progress towards ending the war between Ukraine and Russia. Moreover, signals regarding the future trajectory of interest rates in the US during the Federal Reserve’s annual symposium in Jackson Hole this week are likely to impact the dollar, and may thus affect risk assets such as oil. Finally, the refined product complex will have its eyes set on the Trump administration’s decision on small refinery exemptions on biofuel mandates, which is likely to be announced at the end of this week. We have reached an interesting crossroads amid an increasingly precarious fundamental backdrop – a mix that could make the next few days feel like a stress test for the crude shorts.
