Near-term oil prices are likely to remain volatile, influenced by financial market turmoil, but a positive outlook is beingmaintained by Swiss bank UBS. 

The bank said prices had fallen strongly in the last few weeks, driven by mass liquidation by financial investors. 

Its long-term forecasts remain at $100 per barrel in June, rising to $105 per barrel in September. 

“Non-commercial accounts have slashed their net length in aggregated Brent and West Texas Intermediate (WTI) futures and options holdings by more than 168,000 contracts over the last two weeks ,” the bank said. 

“At slightly above 140,000 contracts, net length stands at the lowest level since the 2011 availability of combined Brent and WTI data.” 

The banks said the liquidation by financial investors over the last two weeks was the sixth largest since 2011, with larger declines only seen in 2016 and 2020. 

The positioning washout was driven by a reduction in long positions (down by about 91,000 contracts) and an increase in short positions (up by about 77,000 contracts), the bank said. 

“In our view, the short position additions might have been influenced by financial institutions protecting against the price downside risks of options they had sold to oil producers, forcing them to sell futures contracts when the oil price fell below the strike level of the option.” 

The bank said fundamentals support a tightening of the oil market.

“China’s recovery is pushing Chinese crude imports higher, and the US  saw a large drop in refined product inventories last week.” 

A pledged production cut by Russia is not visible in Russian crude and refined product exports, UBS added, which are both higher versus February, with the bank continuing to watch for a drop. 

“Near-term support might come from the halt in exports from North Iraq of around 500kbpd over  the weekend, although we think this may only be a temporary disruption,” the energy update concluded. 

(Reporting by Imogen Lillywhite; editing by Cleofe Maceda) 

imogen.lillywhite@lseg.com