March 2, 2024

In a report sent to Rigzone late Tuesday, analysts at Standard Chartered hailed the performance of the company’s recently launched machine learning model for oil price forecasting.

“SCORPIO, our machine learning model, has performed well again,” the analysts noted in the report.

“Last week, SCORPIO forecast a week on week fall of $2.83 per barrel for Brent at settlement on 27 November. The actual week on week change was a fall of $2.34 per barrel,” they added.

“While the error of $0.49 per barrel was larger than the previous week’s error of just $0.05 per barrel, we think that is a good result in a week with so much event risk that giving even a qualitative direction call in advance was difficult,” the analysts continued.

“For Brent settlement on 4 December, SCORPIO indicates a week on week increase of $1.28 per barrel, with the overstretched bearish positioning of speculative funds providing the largest positive component,” the analysts went on to state.

In the report, the Standard Chartered analysts highlighted that speculative funds remained bearish on oil in advance of the OPEC+ meeting that took place on November 30.

“Crude oil is now the least favored positive exposure among money managers across the main metals and energy contracts, according to our positioning indices,” the analysts noted in the report.

“It has slipped to last, from being the second most favored positive exposure in early October,” they added.

“The changes in the latest positioning data were relatively small. Across the four main WTI and Brent contracts money-manager longs fell 13.03 million barrels week on week to a six-month low 434.7 million barrels, while money-manager shorts fell 3.0 million barrels to 217.7 million barrels,” they continued.

“The long-short ratio across the four contracts was unchanged week on week at 2.0,” the Standard Chartered analysts went on to state in the report.

In a report sent to Rigzone on November 21, Standard Chartered analysts noted that SCORPIO “performed well last week despite the sharp swings in prices intra-week”.

“Last week, SCORPIO forecast a 20 November Brent settlement of $82.37 per barrel, just $0.05 per barrel higher than the actual settlement,” the analysts stated in that report.

“The SCORPIO prediction for the 27 November close seems (from the point of view of a fundamental analyst) to be a bold one. It forecasts a week on week fall of $2.82 per barrel,” the analysts added in that report.

“While money-manager positioning has become so biased to the short-side as to represent a significant positive for prices, technical indicators and a host of other factors including USD movements more than offset that source of positivity, according to the SCORPIO decomposition,” they continued.

SCORPIO Launch

A report sent to Rigzone on September 26 revealed that Standard Chartered was launching a machine learning model for near-term Brent price forecasting.

“The machine learning model programmatically collects and analyzes a set of available data and features, weighing the information into a meaningful signal,” Standard Chartered said in that report.

“It allows an element of explainability and aids the decoupling of market sentiment from fundamentals,” it added.

The model incorporates features including high-frequency data points, pricing information for crude and refined products, technical indicators, positioning data, global stocks, implied demand, imports and exports, as well as non-oil data such as USD strength, PMIs and other macroeconomic inputs, Standard Chartered outlined in that report.

The company highlighted in the report that SCORPIO is “still vulnerable to so-called ‘black swan’ events – unpredictable events that would not be picked up within our set of indicators and could significantly impact short-term price movements”.

“In the oil space, such events could include rapidly developing severe hurricanes, geopolitical developments or terrorist acts, producer policy decisions, or broader macroeconomic events such as bank collapses,” Standard Chartered added in the report.

In a separate report sent to Rigzone on the same day, Standard Chartered revealed that SCORPIO forecast a week on week price increase of $2.1 per barrel for front-month Brent to settlement on October 2.

Another Standard Chartered report sent to Rigzone on October 3 noted that “a week containing an end of quarter including expiring contracts and high backwardation represents fairly challenging conditions for SCORPIO”.

“Its forecast last week was for a $2.1 per barrel increase from 25 September prices, which would take the November Brent contract to $95.39 per barrel, just $0.08 per barrel higher than where it expired,” that report added.

“However, the sharp falling away of the December contract on 2 October left that contract $1.17 per barrel lower week on week,” it continued.

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

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