Short Squeeze In Oil But Not So Fast

WTI and Brent have managed to rally a nice ~$6/bbl since the lows. Most of the recent rally comes from a slew of short-covering activity. As we saw in the latest CFTC report, the short position reversed quickly.

Source: Giovanni Staunovo, CFTC

Speculator net-long positions remain very low. There is still more room to run on the short-covering side, but we see some issues on the fundamental side.

In our WCTW report last week titled, "Speculators Gone Wild." We wrote:

Once we see refining margins move higher, we know that the oil market healing process is almost complete. All that's left is for crude backwardation to return, and prices should be meaningfully higher.

With a bit of reversion in short positioning + a tighter physical oil market backdrop, we believe WTI has room to rally to $81/$82 with Brent to $85/$86. For the moment, that's likely to be the peak given the "perception" around Q1 2024 balances.

Since then, 1 of 2 things happened. Brent timespreads are back in backwardation: