September has been a month of many firsts in Brent futures: for one, the benchmark crude futures contract collapsed below $70/bbl on 10 Sep for the first time in three years. Soon after this feat, ICE COT data for the week ending 10 Sep reported that players were net short the Brent futures complex for the first time on record. Despite this weakness, Dated Brent and Dated differentials were shielded from the bears, with the physical differential briefly dropping to just above $0.99/bbl on 09 Sep to then rising to $1.275/bbl on 16 Sep. This relative support emerged due to strong buy-side forces present in the market. On 06 Sep, we saw Chevron offering WTI Midland across the curve, only for Totsa to lift the offer. Afterwards, we saw Gunvor and Petroineos buying Ekofisk and Midland cargoes, respectively, with BP and Glencore on the sell side.
In line with Dated Brent remaining relatively supported, while the Bal Sep’24 DFL sold off to $0.15/bbl on 10 Sep, it recovered to an intraday high of $1.20/bbl on 13 Sep as market positioning flipped from short to long. In line with this, trade houses had mostly unwound their short positions as the physical differential held up. We now see decent buying, including noteworthy buying by Chinese players in the Balmo DFL. However, while the Oct ’24 DFL witnessed a similar retracement upwards, this support in Oct ’24 remains capped due to significant selling in backend Sep ’24 and Oct ’24 rolls. For instance, the Oct’24 Dated to Lead stands around -$0.32/bbl, up from -$0.37/bbl a fortnight ago.
As for the futures themselves, the consensus from APPEC was bearish. However, with net positioning now skewed short, our view forward is that the risk/reward appears to be to the upside in the short term. Injecting some support and a possible floor to the significant selling is that Libya’s crude oil exports remain sluggish amid failed UN efforts to break a standoff over control of the country’s central bank. That said, the medium term remains increasingly bleak, with refinery margins remaining poor despite the sell-off in crude. Run cuts at NWE refineries are expected to reach up to 300kb/d in September and 700kb/d throughout Q4’24 due to abysmal margins, as per a note by Energy Aspects. We further hear reports of players such as ENI cutting runs by as much as 10% due to weak NWE margins. Still, given how short sentiment is in the futures at present, we may see some respite in the short term, possibly amid profit taking by in-the-money shorts and subsequent stopping out of “late shorts” on the way up. Whether such an exit would sniff out other bears desiring to enter a market will be one to watch.
