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Oil Volatility Rises to 5-Month High

Brent crude oil volatility has risen to a five-month high, according to a report by Standard Chartered, who forecast $128 per barrel in 2026.

STORY FROM RIGZONE.COM | Brent volatility has risen to a five-month high, according to analysts at Standard Chartered, who made the comment in a new report sent to Rigzone late Tuesday.

“The 30-trading day annualized realized measure gained 0.9 percentage points week on week to 37.1 percent on 23 October, taking the increase over the past four weeks to 24.3 percentage points,” the analysts said in the report.

“Trade remains headline-driven with fundamental tightness receiving relatively little attention,” they added.

In the report, the Standard Chartered analysts noted that their supply-demand model indicates a further 120 million barrel reduction in global inventories in the fourth quarter of this year, “on top of the 172 million barrel reduction in Q3”.

“We expect the rate of inventory draw to accelerate from 0.52 million barrels per day in October to 1.38 million barrels per day in November and 1.99 million barrels per day in December,” they added.

“Indeed, we think it is possible to argue that the current dominance of Middle East headline trading has led to lower prices by distracting the market from both falling inventories and from producer policies aimed at achieving a soft landing for the market at higher price levels,” the analysts continued.

“In other words, the recent tendency towards higher prices with lower volatility has been replaced by a downwards drift with higher volatility,” they went on to state.

The Standard Chartered analysts highlighted in the report that last week, the company’s machine learning model for price forecasting, SCORPIO, indicated a Brent settlement price on October 23 of  $89.87 per barrel. The actual settlement was $89.83 per barrel, the analysts pointed out in the report.

“Nervous headline-driven markets are not normally conducive to the operation of short-term price forecasting models,” the Standard Chartered analysts said in the report.

“However, occasionally the noise cancels itself out and such appears to have been the case over the past week,” they added.

“For the next week, SCORPIO indicates a week-on-week price rise of $1.46 per barrel, indicating a 30 October settlement of $91.29 per barrel, with technical indicators still the main drag ($-1.64 per barrel) while speculative positioning is a key tailwind ($1.29 per barrel),” the analysts went on to state.

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Standard Chartered forecasts in its latest report that the ICE Brent price will average $98 per barrel in 2024, $109 per barrel in 2025, and $128 per barrel in 2026.

The report sees the commodity coming in at $92 per barrel in the first quarter of 2024, $94 per barrel in the second quarter, $98 per barrel in the third quarter, $106 per barrel in the fourth quarter, and $107 per barrel in the first quarter of 2025.

In a report sent to Rigzone on September 26, Standard Chartered projected that the ICE Brent price would average $91 per barrel in 2023. That report forecast that the commodity would come in at $93 per barrel in the fourth quarter of this year.

In a report sent to Rigzone on October 17, analysts at Standard Chartered noted that, on September 26, 30-trading day realized annualized Brent volatility “reached a nine-year low of just 12.8 percent”.

“It has since increased to a four-month high of 36.2 percent, having risen by 19 percentage points in the past two weeks alone,” they added in that report.

“Having been at the bottom of the lowest percentile of the five-year distribution of volatility in late September, Brent volatility is now in the 59th percentile, i.e., higher than usual but far from being extreme,” the analysts continued.

At the time of writing, the price of Brent crude oil is trading at $89.64 per barrel. The commodity closed at $84.07 per barrel on October 5, $88.15 per barrel on October 9, $86 per barrel on October 12, $92.16 per barrel on October 20, and $88.07 per barrel on October 24.

To contact the author, email andreas.exarheas@rigzone.com

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