If the oil market was inherently bearishly fragile it should have sold off much more yesterday. Brent crude fell 1.5% yesterday to USD 69.28/b amid an overall very bearish market sentiment where the SPX index fell 2.7% amid increasing concerns for the damages Trump is doing to the US economy and the increasing risks for a US recession with Trump himself saying that a recession is possible but that in the longer-term everything will be better. Amid such an overall bearish market sentiment one could argue that the 1.5% decline in Brent crude yesterday was a fairly limited decline. Maybe because Brent has sold off so extensively since mid-January and thus has taken out a lot of downside action already. This morning Brent is up 0.3% to USD 69.5/b. Though still below the magical USD 70/b, but not much. If the oil market was inherently bearishly fragile it should have sold off much more yesterday.

A weakening of the 1-3mth time-spreads probably needed for Brent 1M to move lower. The 1-3mth time-spreads are holding quite steady. No rapid deterioration to be seen yet. And the flat price Brent 1mth contract is trading weakly versus the average 1-3mth time-spread of Brent, WTI and Dubai with Dubai the strongest. To see further aggressive downside price action, we probably need to see further deterioration in the front-end time-spreads.

A period of industry disruption ahead says US Energy secretary. The US Energy secretary Chris Wright has told the Financial Times that we’ll likely see a period of industry disruption ahead similar to the price war between OPEC and US shale oil producers in 2014. But that the US shale oil industry will come out stronger and with much lower costs than before. This is definitely not what the market is pricing in today. It can only take place if either OPEC+ or US shale oil producers boosts production or if we get a global recession. OPEC+ looks set for a controlled and gradual lifting of production and US shale oil players looks set for a very careful production growth. With such signals from Crish Wright one should think that US shale oil players will play an even more defensive game in fear of possibly tumbling prices. The signals from Crish Wright are chilling to say the least, but it is highly unclear how he is going to pull it off.

Brent 1mth has taken out the USD 68.68/b but has still not followed through to yet lower levels than the recent USD 68.33/b.

1-3mth time spreads of Brent, WTI and Dubai have recovered since mid-Feb and are holding out quite strongly. No deterioration to been seen at the moment.

The average 1-3mth time-spreads of Brent, WTI and Dubai versus the Brent 1mth contract.

The average Brent 1mth price at current 1-3mth time-spreads at current level historically.

Brent fell 3.9% as OPEC+ will produce more in April. Brent crude fell 3.9% last week to USD 70.36/b. Following a low of USD 68.33/b, the lowest since December 2021, it rebounded on Friday with an intraday high that day of USD 71.4/b. The message from OPEC+ at the end of February that they will start to lift production from April was the main bearish driver.

Net long specs are folding their cards as bullish prospects fade. Net long speculative positions in Brent and WTI fell 73.8 mb to 344 mb over the week to Tuesday April 4. It is still well above the 162 mb length on 10 Sep when Brent bottomed at USD 68.68/b. I.e. we came to a lower price level this time around with higher specs than on 10 Sep. Speculators thus has potential to shed more length if the bearish sentiment continuous.

Weakening of the crude curve – how far? OPEC+ preference is flat to backwardated. But the group can probably stomach flat to slight contango during a period where they lift production. The Brent crude structure has been in steady decline since the Brent 1mth to 60mth price spread peaked at USD 47.4/b on 10 June 2022. The latest signal from OPEC+ of more oil supply into a period of projected surplus calls for yet softer crude curve structure as rising inventories naturally should drive it into contango with front-end discount to longer dated prices. But OPEC+ has a natural distaste for a contango market as they then sell their oil at a discount to assumed non-OPEC+ marginal costs.

The 1mth to 60mth time spread has gone into deep contango three times over the past 20 years. Negative macro shocks in 2008/09 and in 2020 were countered by OPEC(+). But it took some time to drive the Brent curve back to flat/backwardated. In 2014/15 it was deliberate action by OPEC in order to ”kill US shale oil producers” but OPEC policy was reversed in 2016, and OPEC+ was created.

OPEC+ is unlikely to repeat 2014/15. The group is still in full control. It can probably accept a flat curve and stomach a little contango for a while. But deep contango like in 2008/09 and in 2020 will require a negative macro-shock. A flat curve implies a Brent 1mth at USD 67/b (= five year contract). But longer dated contracts have a tendency to weaken a little when the front-end weakens.

Brent crude 1mth down to USD 68.33/b last week and lowest since Dec 2021.

A substantial weakening of the Brent crude oil curve since July 2024. Still front-end backwardation. Longer dated price holding steady around USD 67/b. But it was closer to USD 70/b in July 2024.

The Brent 1mth still holds a small premium of USD 3.2/b over the 60mth contract. But clear fading since 2022.

The Brent 1mth to 60mth price spread. Deep contango three times over past 20 years. Deliberate by OPEC in 2014/15. But negative macro shock in 2008/09 and 2020. OPEC+ can probably accept a flat curve and stomach a light contango over a little period while they place some of their volumes back into the market. But deep contango requires a sharp, negative macro shock.

Net long speculative positions fell 73.8 mb last week. Still some length to shed if bearish sentiment persists.

52 week ranking of Brent 1 to 7 mth curve structure and net long speculative positions in Brent + WTI.

Brent was shaken ydy by the sharp selloff on Wednesday but ticking above the 70-line today. Brent crude inched up 0.2% to USD 69.46/b yesterday following the sharp selloff on Wednesday. The market was clearly still shaken by the sharp selloff on Wednesday when it then traded all the way down to USD 68.33/b and the lowest since Dec 2021. Market ydy didn’t quite dare to make any bets on the upside and basically stayed put. Brent is rising 0.8% this morning to USD 70/b staging a bit more confidence that the recent selloff was a little too much and a little too soon as surplus is not here quite yet. Stronger 1-3mths time-spreads today is also indicating the same. The Brent 1mth price is currently trading very soft versus the 1-3mth time-spreads. So, more rebound is definitely possible given both time-spreads and technically oversold market.

The current average 1-3mth time-spread of Brent, WTI and Dubai is rising to USD 1.06/b this morning. Looking at the relationship between the Brent 1M and these time-spreads so far this year we could possibly see the Brent 1M price rebound to USD 73.5/b given the level of the current time-spread and the fact that Brent is currently technically oversold.

Consolidation around the 70-line for a period, but message from OPEC+ is clear: lower oil price. The message from OPEC+ when they now have decided to lift production in April and into a period of surplus, is explicitly clear: lower oil prices. But the group is still acting in a highly controlled way. This is not a flash-crash but an adjustment. This is probably starting to dawn on the market today as it trades up above the 70-line again today following technically oversold territory. But back down below the 70-line again in the coming weeks and months seems the natural conclusion to draw following what OPEC+ now has decided to do. But given the current oversold state of Brent crude it seems likely that we’ll see some more consolidation around the 70-line before renewed bearish action ensues. Trump Tariff Turmoil of course adds a lot of bearish concerns for the US economy which naturally flavors over to crude oil as well.

Brent crude still very much in oversold territory. So, more consolidation around the 70-line seems likely before more bearish action continuous.

The 1-3 months time-spreads are rebounding a little today. Again, highlighting the fact that surplus is not here quite yet.

Brent 1M flat price is trading very soft vs. the 1-3mth time-spreads.

The average Brent 1M price so far this year when the 1-3mth time-spread has been in the current range is USD 73.6/b. Brent M1 rising to that level would be kind of neutral territory given the level of the time-spreds.