Hedge funds and other major investors have soured on oil prices, and the pessimistic turn has corresponded with the deep selloff in recent weeks.
Since the beginning of June, the long positions held by speculators have been liquidated and they have moved to scoop up short bets equivalent to 162 million barrels, almost a record high, according to the FT. The sudden bout of pessimism came after the market concluded that OPEC’s efforts, following the group’s late-May meeting in which it extended the production cuts for another nine months, would be insufficient in balancing the market.
We have previously explored the multiple reasons why the market could remain oversupplied, from the resurgence of Libyan and Nigerian production, to ongoing increases from U.S. shale, elevated crude inventories, and questionable demand figures.
It all adds up to a growing consensus that we may not see a rebound in prices anytime soon. JP Morgan just put out a new forecast in which it predicted that Brent crude would average below $50 per barrel…through the end of 2018. The investment bank says WTI will average just $42 in the fourth quarter of next year.
In the short run, the sentiment of hedge funds remain negative, with short positions of these players on the market continuing to accumulate. The negative movement is also confirmed by the volume on the chart as it increases significantly during the last downturn.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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