Speculators have been quick to chase a breakneck rally in crude futures. Now, the U.S. benchmark may be prone to a near-term pullback, warned analysts at Société Générale on Monday.
West Texas Intermediate crude
CL00,
the U.S. benchmark, closed Monday at $91.48 a barrel on the New York Mercantile Exchange, a gain of 71 cents, or 0.8%, for its highest close since Nov. 7. It’s rallied more than 37% off its 2023 closing low of $66.74 set on March 17.
November Brent crude
BRN00,
BRNX23,
rose 50 cents, or 0.5%, to close at $94.43 a barrel. It’s up more than 31% from its 2023 low.
SocGen analysts, led by Benjamin Hoff, global head of commodity research, estimated that the energy complex saw a $4 billion bullish flow in the weekly period ended Sept. 12, driven by flows of $2.7 billion for WTI and $2.1 billion for Brent. Bullish flows are defined as long building plus short covering, or long building that exceeds short building, or long liquidations that’s less than short covering.
Money-manager long positions in WTI are now the largest since February 2022, while Brent longs are largest since this past March.
SocGen’s one-year overbought/oversold, or OBOS, model, meanwhile, remains “extremely overbought” for WTI, the analysts wrote. That means WTI futures are “extremely vulnerable” to a one-year pullback. Brent moved in the same direction, but hasn’t yet reached overbought territory due to a lack of long money-market positioning relative to total market open interest, SocGen said.
Open interest refers to the total number of open contracts.
A decision by Saudi Arabia to cut production by 1 million barrels a day beginning in July has helped boost the rally for crude, amplifying expectations for a second half supply deficit. The cut was recently extended through the end of the year, while Russia has also moved to curb supplies by 300,000 barrels a day over the same stretch.
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