Oil prices accumulated a more than 1-percent decline this week, pressured by U.S. production growth, despite the variety of bullish demand forecasts and data about tightening global supply. A record-high number of long positions on Brent and WTI also helped fuel a concern about the immediate future of benchmark prices.
The ratio of long to short positions on Brent and WTI, Reuters’ John Kemp noted in his latest column, now stands at 10:1, compared with 1.60:1 at end-June 2017.
The Energy Information Administration reported yesterday that overall oil production in the Untied States had hit 9.75 million barrels daily last week, up by 258,000 bpd from the previous week and a whopping 806,000 bpd from a year earlier. At this rate of weekly growth, U.S. drillers could hit the 10-million-bpd mark much sooner than expected unless they deliberately decide to rein in production to stop prices from falling. As this figure is comprised of numerous individual companies, a concerted effort to rein in prices is highly unlikely.
Adding to the negative reaction was a reported 258,000-bpd build in gasoline inventories that took the joy out of a ninth consecutive weekly decline in crude oil inventories, and not a small one, at 6.9 million barrels. Related: Peak Oil Demand Is A Slow-Motion Train Wreck
The weekly price decline for West Texas Intermediate could come in as high as 1.8 percent, MarketWatch notes, and Brent could book an accumulative loss of the same size. “The market appears a bit overextended after a 30% rally, with barely a move lower, over the past three months,” a Bank Wealth management investment strategist, Rob Haworth, told MarketWatch.
Another analyst, Oanda market strategist Jeffrey Halley, chimed in, telling Reuters that crude futures had been at “overbought levels for an extended period as record speculative longs built on the futures markets”.
Even so, the dominant view seems to be that there is enough support for prices and the downward potential is limited for the moment. At the same time, so is the upward potential, because of the OPEC cuts.
By Irina Slav for Oilprice.com
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