Contango
Dissonance rules 2025, market looks to 2026
In this report: Deep C.O.T analysis on Brent & WTI. Market narratives narrow. OPEC next actions.
Views
Oil remains titled to oversupply. Middle East tensions continue to cast a long shadow over seaborne flows, with Iran-Israel brinkmanship and persistent Houthi threats to Red Sea shipping routes keeping tanker risk premia elevated. Meanwhile, U.S. shale-the market’s old swing producer-has gone quiet, with capital discipline, rapid well declines, and flat rig counts stalling any meaningful growth. On the flip side, upside supply risk still lingers: a thaw in U.S.-Iran relations could see up to 1.7M bpd flood back into the market, while OPEC’s spare capacity-namely from Saudi and the UAE-could quickly be tapped if quota discipline gives way to fiscal reality.
OPEC production increases are supposedly because they are teaching Kazakhstan a lesson for over producing. The real game, as I wrote about April 3rd, is that they are conducting a smart market share war with The U.S. This is a view that has grown amongst analysts over the last 6 weeks. I’m going to share here the chart I shared almost 2 months ago. I personally don’t think OPEC has a price target in mind for when they will stop increasing production, but this chart helps in understanding the breath of this strategy.
Meanwhile, over at the IEA, Finding Nemo, IEA discovers its ‘missing barrels’. Someone in the quant department is getting fired. After 2 years of a quite public spat between OPEC and IEA, IEA finally admit to getting the data wrong.
Demand revision that cumulatively represents a change of 343 million barrels. That is close to three-and-a-half days of global oil demand. Every episode related to this has ended up with the IEA revising upward its demand figures- Haitham Al Ghais, OPEC Secretary General
Articles
Finding Nemo, IEA discovers its ‘missing barrels’
New intelligence suggests Israel is preparing a possible strike on Iranian nuclear facilities, US officials say
Iranian civil society sends letter to UN chief, warns against US potential attack
OPEC+ discusses making another large output hike in July, Bloomberg News reports
Commitment of Traders analysis
Going forward, I will be posting C.O.T analysis for Brent and WTI in each report for paid subscribers. This is a meaningful value add-on to this report for professional market participants. We have invested in the development of in-house tools in Duggan Capital to enhance risk management across the energy curve. Insights from this tool will be shared here below. Each week, I aim to extract signal over noise.
BRENT
Notes: Commercials in Brent are net crowded overweight Long. Commercial shorts are at 59th percentile of all time. Longs in the 78th percentile. This may be due to the curve contango through 2026. With 2025 inventory all but already hedged and contracted for delivery.
Commercials long-Near (but not at) crowding levels around the 78th percentile. Seasonally above the last 20 years average.
Commercial’s short, around median all time levels. Seasonally, a shave below average participation.
Large Specs
Large Specs increased their short positions +4.7% WOW, increasing longs by 2.3%. Leading me to believe they are increasing their short weight in spread positions at a rate of 2:1. As a trader this makes most sense to me, they are positioned to take advantage of further downside while spread and removing delta risk (outright position risk)
If we then look to Large specs spread positions, we see a much clearer picture. Spread positions are coming off very high crowding levels. Keeping in mind, the more delta risk (outright front month volatility), the more you want to spread your risk/ offset it. Given the Q1 we have just had and having traded oil throughout this, I can safely say that people will be happy to lighten up positions a little leading through this next phase of the tariff drama. The dissonance in the marketplace is actually much higher now for oil than it was in Q1. China not coming back to buying US product, despite the 90 days pause, potential tightening of EU sanction price caps on Russian oil and US production also slipping off best levels.
WTI
Given that the volumes on Brent are far above WTI (tariff dissonance and absence of China from U.S. market) I won’t hash over all the same charts as above. General oil curve directionality will be driven by Brent positioning.
Note: What IS interesting about the WTI report, in confluence with the Brent report, is that Large Specs SPREADS are high seasonally but not crowded in the 75th percentile. What is NOTEWORTHY is the seasonality timing. Traders have been front running the seasonal curve for oil all year. I suspected this earlier in the year when one of my go to annual plays kicked into overdrive on steroids about 5 days earlier than expected. What would normally be a sustained upside for 3 weeks, got priced up and then out within 3 days. It feels like the energy world wants to price out 2025 barrels as soon as possible and get into the contango curve start.
If you look at the current seasonality chart below, the upward inflection in April has front run the inflection we should be getting now.
Net, expect seasonality trades to kick in about 3 weeks earlier than normal for the rest of the year as we trade towards the contango kick off point- Dec 2025.
TRADE
I don’t have much to add here. The narratives drawn out last week have certainly narrowed down to focus on a smaller group of drivers during the week, however OPEC meeting June 1st will rapidly become the ONLY driver if/when they announce another 411bpd onto the market. Those Kazakhstan drillers really are not learning their lesson!
Holding IB Down on the year, I expect further downside this week in oil, not withstanding macro headlines.
My fellow oilers, it would mean a lot to me, really, if you could like this report, share it, leave a comment, some feedback or in general let me know you are out there as a community. It means a lot to me, thanks in advance.
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Until next week, my friends.
Tim
OPEC+ Meeting has been pulled forward to May 31st from June 1st. #OOTT