Summary

In August, the OPEC Reference Basket (ORB) value fell by $6.02, or 7.1%, m-o-m, to stand at $78.41/b, as all ORB component-related crude benchmarks dropped, particularly medium sour benchmarks. The ICE Brent front-month contract dropped by $5.00, or 6.0%, m-o-m, to stand at $78.88/b, while the NYMEX WTI front-month contract dropped by $5.05, or 6.3%, m-o-m, to average $75.43/b. DME Oman front-month contract dropped by $5.83, or 7.0%, m-o-m, to average at $77.54/b. The ICE Brent-NYMEX WTI front-month spread remained relatively narrow, below $4/b, in August, although it widened slightly, m-o-m.

Hedge funds and money managers continued their bearish stance on crude oil in August, following significant reductions in net long positions in July. This contributed to oil price volatility and accelerated the decline in oil futures prices. Net long positions in ICE Brent were reduced to their lowest levels since at least 2011. The selling pressure was particularly strong for NYMEX WTI, where a substantial number of long positions were closed and short positions increased only slightly. Between 30 July and 27 August, hedge funds and money managers sold an equivalent of 23 mb.

The structure of oil futures prices remained in backwardation despite heavy selling pressure that weighed on front-month contracts. This indicates strong physical crude market fundamentals and a positive global oil supply/demand outlook. The forward curve of all major crude benchmarks were consistently in backwardation over August, particularly sweet crude benchmarks, amid support from supply outages in North Africa that spurred demand for prompt loading of alternative grades.

The premium of light sweet crude over medium sour crude widened further in Asia and Europe, while little changed in the USGC, as light sweet crudes continued to perform better compared to heavy/medium sour crudes. The surge of demand for light sweet crude, particularly in the Atlantic Basin, following outages boosted the value of sweet grades. Stronger light distillate margins, particularly with naphtha, contributed to the widening of the spread between sweet and sour crude.