Long Bets Capping Oil Rally, Physical Markets Need Shock to Keep Rising

Oil prices rebounded Monday after U.S.-Iran tensions escalated, but commodity trading experts at Standard Chartered say the rally's upside is capped by record-long bets from money managers.

The Brent crude price for November delivery rose to $106.09 per barrel, while WTI crude traded at $93.29 per barrel. However, StanChart says physical markets need a deeper impact from the war before the oil price can regain momentum.

Standard Chartered reported that Commodity Trading Advisors (CTAs) are positioned at maximum long across Brent, WTI and refined product markets for only a handful of times in the past decade. The systematic bid pushing crude higher has little room to run, and further gains depend on discretionary or physical buyers stepping in.

StanChart splits the risk to crude prices into two directions: a drop can be driven by funds unwinding their crowded long positions, while a rise requires a genuinely new physical shock, such as infrastructure damage or a sustained cut to flows through the Strait of Hormuz.