The oil outlook is down and global tensions are failing to lift prices

The sentiment in the oil market has changed dramatically in recent days as the prospects for lowering the prices of hedge funds, producers and traders are related to what they see as a weakness in global demand.

The oil market is struggling to maintain its rebound despite production constraints, which would generally be seen as a rise in prices. The sanctions imposed by the United States on Venezuela and Iran have reduced the market by more than 1.5 million barrels a day, and the Organization of the Petroleum Exporting Countries (OPEC) has extended the Agreement on the reduction of production until 2020, while tensions between the United States and Iran intensified.

Until now, Brent crude futures are struggling to maintain their recovery above $ 65 a barrel and fell nearly 7% last week, as US futures barely over $ 60 per barrel.

"Despite our news that prices are rising, prices are not changing," said Janel Matharou of InsideAut Commodities and Risk Management Consultancy. Fifteen years ago, this kind of news could have changed the price by $ 20 or $ 30 a barrel. "

Hedge funds and investors stalled after realizing that demand could be weaker than expected as US production increases. At the same time, traders and oil brokers have stated that producers have rushed to contract specific prices in the future, betting that this could be the best chance for them to protect themselves from declining prices. price.

Futures did not have the closest sale, but given the long-term contracts, the underlying weakness is obvious.

The Brent crude premium has fallen in short-term contracts over oil, which is expected to be delivered in six months from a record low of $ 4 a barrel in May to less than $ 1.50 last week. This is a sign of mitigating concerns about supply shortages.

Even tensions in the Strait of Hormuz, where the United States and other carriers are moving away from Iran, have only reported modest gains. On Monday, Iran said it had arrested spies working for US intelligence, which US officials denied. This comes after the announcement Friday that Iran had stopped a British tanker.

The Brent rose 1% to $ 63 a barrel but remains below the year 's high of several dollars.

However, the steady rise in US oil production and demand-driven concerns over the long-running trade war between China and the United States weigh on demand expectations. The International Energy Agency (IEA) has recently lowered its forecast of global demand in 2019 and 2020 and has announced that it could reduce it again if the global economy, in particularly China, appeared to be more vulnerable, while Saudi exports had fallen to their lowest level in a year and a half in May.

Traders said Brent's long-term purchase options had been sold "relentlessly" in December 2021 and 2022, underscoring growing expectations that demand for oil would decline as supply rose.

"There is a marginal feeling that the current price is unsustainable and that the market structure supports it," Matthrow said.

The Brent average price for 2020 fell to $ 60.28 a barrel last week, its lowest level in a month. In addition, speculative bets on futures and options on US crude with the New York Mercantile Exchange are close to their lowest level since 2013.

The double price is causing problems for oil producers and many have started to protect themselves from a sharp drop in prices in the future.

With the recent market weakness, some consultants have warned that the wait is too long to protect against future market movements by buying put options or buying oil at a future price.

"We are telling producers that in the future a fixed price contract, we are betting less on rising prices than most of our customers," said Thibot Remondoz of London-based CTC hedge fund consulting firm . We believe that the downside risk is higher than that already calculated in prices. "