While enthusiasm in the U.S. oil market dwindles, things are looking a little brighter across the pond.
For a second week, hedge funds refrained from making big bets on West Texas Intermediate prices stuck below $50 a barrel in New York as American output keeps rising.
Crude output at major shale fields like the Permian in Texas and the Bakken in North Dakota is set to reach a record next month. Despite seven straight weeks of U.S. stockpile declines, the latest weekly report from the government showed supplies at Cushing, Oklahoma, the delivery point for WTI, expanded by the most since March.
That has kept the U.S. oil benchmark trading at a discount to its longer-dated futures. This market structure, known as contango, is typical of a glut because some buyers are willing to pay more for future deliveries to avoid storage and insurance costs for barrels they don’t immediately need. Those who are able to hoard the crude at low costs, on the other hand, seek to buy it at a cheaper price now to sell it for a profit later.
With Brent, the opposite is happening. Demand for delivery sooner is increasing, so the benchmark that’s most used around the world is selling at a premium to its longer-term contracts -- a situation know as backwardation that signals a shortage.
The North Sea oil market is being supported by traders booking shipments to rare destinations such as Chile, Uruguay and Thailand. The volume of oil being stored there in floating tankers is falling.
Brent crude on Monday was trading little changed at $52.66 a barrel as of 12:45p.m. in Singapore, holding last week’s 1.2 percent gain. WTI last week fell 0.6 percent. Brent for October delivery ended Friday at a $4.06 premium to WTI for the same month, the widest gap since September 2015. The spread narrowed to $4.02 on Monday.
Hedge funds decreased their WTI net-long position -- the difference between bets on a price increase and wagers on a drop -- by 2 percent to 274,441 futures and options in the week ended Aug. 15, data from the U.S. Commodity Futures Trading Commission show. Longs slipped 2.2 percent and shorts fell 2.6 percent.
Whatever the position of the big players, one thing is certain, and it is that they lose interest in trading with the oil at the moment. Expectations are oil prices to consolidate below $50 per barrel in the coming weeks to see whether the temporary decline in US stocks is the result of the summer season, which is characterized by increased demand for raw materials.+
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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