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The rise in oil prices has been halted by the withdrawal of investors, Trump promises an OPEC oil flood and the global economy is showing signs of slowing down.
Washington's "maximum pressure" campaign caused a surge in oil prices just a week ago, but prices collapsed on Friday after Trump tweeted that he had "called for OPEC" to tell them to increase production.
The flip-flop means that price volatility has skyrocketed. The 3% drop in Friday oil prices was the biggest drop in a day since the beginning of the year. But this happened after prices rose almost as much at the start of the week when Trump surprised the world by deciding not to extend the sanctions waivers.
As the Wall Street Journal notes, oil prices have made several daily moves of at least 2.5% last week, the first time in two months. "The roller coaster has been massive in the last two months," Tyler Ellegard, an investment analyst at Gradient Investments, told The Wall Street Journal.
Hedge funds and other fund managers have increased the ratio of long-to-short bets for the ninth consecutive week last week, an extraordinary showing of bullish sentiment. Fund managers have been the sharpest net long position since October 2018. At the same time, the rapid rise in long-term bets is likely to be overwhelmed, and Friday's sell suggests investors are booking profits and cutting back. their positions. The reduction of long bets can itself contribute to lower oil prices. Spouse: Massive decline in US oil rigs fails to stop price slide
But there are also fundamental reasons why prices may have reached a temporary limit. The market is now planning an increase in OPEC + production, especially after Trump tweeted that the supply was imminent. "The prices of gasoline are down. I called OPEC, I said that they had to shoot them down. You have to make them fall, "said Trump.
Many sources of confusion suggest that Trump did not speak with OPEC officials. It is quite plausible that there is an unofficial agreement between the US and Saudi authorities that Saudi oil would make up for Iran's failures in Iran, though it also seems more likely that nothing has been done between the Iranian administration and Iran. Trump and the Saudi government. Confusion does not contribute to the problem of price volatility, as there is not much clarity on what can be expected from OPEC + in the coming months.
"Allegedly [Trump] he has been on the phone with Saudi Arabia and OPEC and persuaded them to allow more exports in order to drive down gas prices to the states. "Commerzbank said in a note explaining the recent fall in oil prices. But the bank noted that most price cuts on Friday took place before Trump posted his tweet. This suggests that the overly broad nature of speculative betting could be the biggest culprit. Related: Rosneft sees no oil deficit looming as Iranian sanctions come to an end
"We believe the pronounced reaction is probably due to the current overbought market situation, as financial investors recently extended their net long positions on Brent and WTI to six-month highs," wrote Commerzbank. "Therefore, even low levels of uncertainty can trigger a stronger price response. However, as the supply situation remains tight, further price increases are likely. "
As the US decision to lift sanctions waivers against Iran is now clear, the main variable facing the oil market – and the one behind so much volatility – is how OPEC + will react. Some members of the coalition, especially Russia, are eager to end the agreement. On the other hand, Saudi Arabia is reluctant to underestimate the price increase, both because of the mistake made last year to increase supply and let prices fall, as well as budgetary pressures. in Riyadh. The Saudi budget requires about $ 85 a barrel to break even, and while Saudi Arabia may run a deficit and raise money by issuing new debt – probably for a long time – it is safe to say affirm that there is a desire in Riyadh to raise oil prices.
It is precisely because it is very difficult to predict how all these variables will stop that we have witnessed such a sudden resumption of volatility.
By Nick Cunningham from Oilprice.com
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