Despite the bullish signs, traders avoid oil

Earlier this week, oil reversed a four-week losing streak pushed higher by production shutdowns in Canada and analysts’ expectations that supply tightness is about to set in during the peak demand season.

However, traders have been selling oil and fuel in the past weeks and may need more time to break out. Since April 18, hedge funds and similar entities have sold the equivalent of 249 million barrels of crude oil, according to Reuters market analyst John Kemp. mentioned in his column this week. The amount represented half of their previous positions in oil.

It’s hard not to see the reason for the sell-off: a lot has been reported about the looming recession in the US. Even if things don’t get as bad as a full-blown recession, inflation remains a huge problem with a potentially negative impact on prices.

However, as Kemp notes, prices have now fallen below their long-term average for the time of year. This usually indicates that it is time for a correction and puts traders on the ready solid starting line. However, it did not happen. It seems that few believe that oil will start to rise again in the coming weeks.

Analysts expect it, albeit a little further, in the second half of the year. Dutch commodity analysts ING, for example, recently weather forecastThe oil supply situation was tighter in the second half of the year, driven by rising demand from non-OECD countries and a smaller-than-expected increase in US production.

Morningstar energy strategist Stephen Ellis He said Recently it is time to buy a dip. “We have near-term surpluses for the first half of 2023, but we expect Chinese demand to pick up and pinch demand a little bit,” Ellis said.

Jeffrey Corey of Goldman Sachs has a similar view. to talk On the sidelines of an event in Saudi Arabia this weekend, Currie also mentioned increased demand from China but also pointed to excess production capacity. According to him, this could diminish by next year enough to bring oil prices back into the triple-digit region. Related topics: Saudi Aramco is considering another stock offering in Riyadh

Of course, Currie also said that sanctions will reduce Russian oil exports, and that hasn’t started to happen yet, contrary to most predictions, so there’s always a little bit of uncertainty left. In this case, there is a great deal of uncertainty due to the volume of Russian exports.

Based on the current sentiment in the oil trading circles and the dovish approach it exhibits, one could suggest that the market would need something larger than the 300k+ barrels per day in closed Canadian production to re-energize oil buying interest.

maybe ignition In regional tensions, where Iran is holding a third foreign tanker, and the United States can intensify its military presence in the Persian Gulf can do the job. That has not happened yet, perhaps because the third tanker was already Iranian, and Iran said it was recovering it after a foreign confiscation, but it may do the trick so far.

Meanwhile, OPEC+ remains a key factor to consider… and it doesn’t seem like they’re planning more production cuts. On the face of it, that would sound bearish if one assumes that the only point in the recent cuts has been to push prices higher. But reservations about further cuts may point in another direction. It could mean that as the high season begins, OPEC+ expects higher demand to do the job for prices.

However, that rally may never materialize, as Citigroup’s Ed Morse recently pointed out in comments about the near future for oil prices. What’s more uncertain when it comes to oil, after all?

“We don’t expect a turning point in demand growth to the upside or insufficient non-OPEC supply. If anything, the odds are that demand will continue to underperform expectations through the year just as it has disappointed demand globally year-to-date,” Morse said. He saidas quoted by Livewire Markets.

Traders seem to think so too, at least for now.

By Irina Slav for

More top reads from

#bullish #signs #traders #avoid #oil

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top