Crude Outlook: OPEC+ Risks vs Bullish Technicals Ahead of September Meeting

Book recommendation: The Rivers of Money by Adi Imisirovic and Colin Bryce.

Articles

• Goldman Sachs expects Brent to decline to low $50s by late 2026
• OPEC+ May Unwind 1.65MM Bpd of Cuts at Next Meeting, Analyst Warns
• Russian oil refineries, terminals burn as Ukraine hits Putin’s war economy
• All major Russian oil companies report profit decline

Macro

From stretched bearish positioning 2 weeks ago, the oil market this past week only tagged on +0.20%. Price action was extremely promising, with volumes trading at good levels and large lot sellers were lifted every time at bottom of range $63’s. All equalling good sideways consolidation-range action.

Thursdays post London session into the close was very strong, with sellers getting to work, trying to contain prices above $63.63 Q-1. A good long above, short below figure for algos looking at quarterly metrics.

Despite bears getting rumbled in the prior week, there still remains the small matter of an OPEC price war strategy at play, making bullish plays risky. But trading oil is a game of managing these types of risk.

So how risky really is it being bullish into OPEC+ increases? Over +2mbpd production is back online this year. The group however is still only exporting at Q4 2024 levels. The threat of OPEC+ barrels ‘flooding’ back onto the market is actually a massive nothing-burger! So far….

Source: Kepler

Many commentators and analysts think OPEC might be done with reintroducing supply for the year. I think this is premature. If this is a war, they will raise another 1.6mbpd at their next September 7th meeting and more in 2026. This September meeting is currently the last scheduled meeting for 2025, but can change. OPEC Meetings schedule here.

Geo Political Risk

In the face of continued successful Ukrainian attacks on Russian facilities, we have an underappreciated war risk premium on supply. Yes, Russian output is stillborn with US/EU sanctions, however, should the political tensions warm up, this would instantly bring focus back to how much Russia can add back to global legitimate supplies.

Meanwhile, Iran comes back into the picture. Thanks NewSquak

Source: NewSquak

Commitment Of Traders

• Non-Commercial Longs -4,101
• Non-Commercial Shorts +6636. Crowded 97th percentile 5yr period.
• Commercial Longs -18356
• Commercial Shorts -28,039 A -1 deviation change, WoW.
  Total reportable shorts WoW change is interesting

Commercials dropping their hedging of price by 28,000 contracts. Indicative, they are locking in less future prices against a drop. On the Non-com side (managed money) They flattened 4,101 longs and increased their short position by 6636 contracts to be 97% crowded on a 5yr look back, only 78% on 10yr look back.

Surface summary, there is dissonance and no clear signal. Non-coms have gone back to short overweight. Commercials, however, have dropped hedging activity, happy to be exposed to front month price changes that may come. Their WoW flattening of shorts is not small (-1 deviation). Remember, they short to lock in current prices on future output.

Z-Score of WoW Commercial Shorts changes. Source: Duggan Capital

WTI Net Open interest. Source: Duggan Capital

WTI. Monthly bars. September 2013 marker in green.

Noteworthy 1: Short squeeze setup

1: Let’s dive into this dissonance (Commercials dropping hedging activity, while Non coms position for more downside).

We can see that Non-coms are at these relatively escalated short levels, about 200k contracts. Seen at these levels last in June and Dec 2023. (Orange line as below)

On both prior occasions, WTI front month price rallied hard for a number of weeks after this positioning showed up from Non-coms. June 2023 lows resulted in a whopping $28 rally (+41%) and the Dec 2023 rally a $19.97 (29.42%) rally. Are we now set-up for another short squeeze on Non-coms? Positioning and its history would say yes!

Non-commercials still very short. 97th percentile. 5 year lookback.

Non-com shorts, 97th percentile on 5year view.

Noteworthy 2: Sellers stepped off the gas.

Total net short change. WoW, total net shorts have gone from -1.88 Z to 0.25 Z. This would tell me net net, shorts had a big go, but in the most recent report, we see a large shift away from that.

Net shorts retreated, WoW. Source: Duggan Capital

TRADE

Purely technical, not withstanding headline risk.

Given the short squeeze positioning setup present, we can continue forward with our long thesis from last week. In order for the squeeze to have maximum effect, WTI MUST be held by buyers at Q-1 $63.63. A small excursion below is acceptable-say to $64.00, last weeks average price. But daily bar closes below this $64 will indicate buyers underwater on any positions taken last week. This then gives us a nice long above/short below line in the sand.

WTI 30 min bars. Weekly VWAP settled $64.01

WTI. Daily bars. QVWAP

WTI. 30 Min bars. MVWAP