- The decline is seen as a “catch-up” response to the weakness in the cash market and lower Middle East risk premium following the expiration of WTI options.
- Fundamental indicators such as lower margins, continued OPEC exports, and weak spread signals contributed to the price decline.
- Goldman Sachs’ model suggests continued selling by the CTA, arguing that OPEC is likely to keep Brent prices within the $80-$100 range.
Lots of questions about the weaknesses of crude oil – Thoughts from our trading desk: With WTI options expiring yesterday, the Middle East risk premium has exited the market, so in our view this move is a “catch-up” to the weak spot market. I am.
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- Profit margins have been sluggish for some time
- OPEC continues to export
- Spreads and DFLs have shown fundamental weakness in recent days
Brent crude oil has breached the 200dma… approaching the oversold level (RSI 32.7)…
- On the volume front, What’s interesting is that the front-end gamma is bidding well on this decline. This is a reoccurrence of the negative spot/volume correlation seen from late September to early October, which was suddenly reversed due to the Israeli attack. Also, the put skew has risen sharply here, with the front-end 25-day RR rapidly approaching the put’s September width of about 5v..) Options desks believe there is gamma around $75 from SOV hedges and other prod strikes, and it’s worth noting that PMI lowered OSP yesterday to move the strike closer to the money.
- I don’t see anything new on the fundamentals side. There is some speculation that a resolution to the Iraq exodus issue is imminent, but nothing has been confirmed and there is no reason for such a big selloff.
- Our models are still available for CTA sales And the timing of the move was usually around the time when flows were increasing.
- GIR today announced its 2024 outlook. “We believe OPEC will use its pricing power to secure Brent in the $80 to $100 range, with a floor of $80 from the OPEC put and a ceiling of $100 from reserves.”” (Link)
Michael Nocerino, Floor Trader at Goldman, via Zerohedge.com
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