Oil: Price correction likely - Natixis

The rally in oil since the start of the year has been caused by geopolitical (Iranian domestic protests and Iran-USA relations) and demand-driven (colder weather in USA) factors, according to analysts at Natixis.

Key Quotes

“Speculative positions in Brent have reached a new record high of 568,500 contracts in the latest Commitment of Traders report by the US Commodity Futures Trading Commission (CFTC).”

“We see a correction as likely, with the impact of transient factors expected to dissipate in the coming weeks to months.”

“The main factor that will pull prices down from recent highs however is the inevitable supply response from US producers, with rig counts likely to begin to rise in response to higher WTI prices through December-January in February-March.”

“With rig counts taken as a leading indicator for US supply growth, market sentiment could flip into more bearish territory.”

“We have revised up our Q1 2018 Brent forecast to $63 (average of period), taking into account the higher prices at the start of the year. Brent is expected to average $64.5 over 2018.”

“We expect WTI to average $58 in Q1, and $60.3 over 2018 as a whole.”