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Growing optimism in the oil market over the past few weeks has made it very clear that traders are expecting an increasingly tight crude market this year.
Oil market players now expect OPEC cuts and US sanctions on Venezuela and Iran to continue tightening the market until the end of 2019.
It is proven that the Brent Brough calendar for the second half of the year has tipped in a backward of $ 0.90 a barrel, against a contango of $ 0.70 at the end of last year. says John Kemp, market analyst at Reuters. .
The retrocommutation is the market situation in which the prices of the first month are trading at a price higher than the future prices, sign of a tighter or under-supplied market. In the opposite structure, contango, the first month's prices are lower than in the coming months, indicating excess supply of crude oil and making oil storage profitable for future sales.
Thus, the move to regularization – which was one of the goals formally stated by OPEC when it began to limit the supply of oil in 2017 parallel to Russia – indicates that many players in the oil market are expecting a tightening of the oil market in the second half of 2019., rising oil prices.
The return of Brent Crude's timing gap was also boosted by the return of bullish hedge fund positioning in Brent's near-month futures, says Kemp. Portfolio Managers typically focus on the shortest contracts due to increased liquidity. Thus, the return of bullish speculators also contributed to the decline in futures contracts, those of later in 2019.
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Over the past two weeks, the climate on the oil market has been increasingly optimistic. First, Saudi Arabia announced that it would reduce by 500,000 barrels a day in March, more than its share of the cuts in the OPEC agreement, as well as reduce exports to less than 7 million barrels. per day. Then, signs began to appear that the United States and China could conclude a trade agreement, potentially avoiding the much feared global economic slowdown that could curb oil demand. Then there are US sanctions on Iran and Venezuela which limit supply, while it is uncertain that more and more barrels of crude oil will be smothered by these two members of OPEC while Nicolas Maduro digs to stay in power and that there is no certainty how the United States would address exemptions granted to Iranian oil customers after their expiry in early May 2019.
Thus, hedge funds and other fund managers have strengthened their long positions on Brent by 10% during the week preceding February 12, the latest data available. This is the largest rise in bullish bets since the end of August 2018, according to stock market data compiled by Bloomberg. . Bets that Brent crude prices are going down have decreased by 5.5% in the last reference week. This was the first clear signal this year that portfolio managers were turning to oil price optimization. The net long position in Brent – the difference between the bets on rising prices and the decline in bets – also increased in the previous weeks, mainly due to the closure of many short films from the end of 2018 rather than a renewal. the rise that oil prices would rise.
In the week to February 5, the portfolio managers added more long positions on Brent Crude, but short positions also rose for the first time this year. Although the speculative positioning of the week led to a slight rise in the combined long net position, the rise in short positions suggested that hedge funds were much more undecided about the next trend in oil prices.
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In the week leading up to Feb. 12, however, the general mood of the hedge fund market rose from undecided upward, speculative short-term buying on Brent contracts accelerating backwardation – the perception of a tightening of the oil market in the second half of the year. of the year.
Saudi Energy Minister Khalid al-Falih said this week that he hopes the market will regain its balance by April, recalling the OPEC leader's determination to do all that was necessary to rebalancing supply and demand was "indisputable".
Saudi Arabia and OPEC reduce sanctions, sanction Venezuela and Iran and hope that a trade war between the United States and China will be avoided, which reinforces the upward sentiment of the oil market. However, higher oil production in the United States and renewed fears of a global economy and slower growth in oil demand could once again weaken market sentiment.
By Tsvetana Paraskova for Oilprice.com
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