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An OPEC Induced Supply Deficit Looms

Friday December 9, 2016

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. Shorts liquidated on OPEC deal

 

(Click to enlarge)

- The oil market has gone through five cycles of speculative movements, as John Kemp of Reuters describes it. Each cycle involves a large build up in short bets, which end when bullish news squeezes out the short positions.
- The first cycle that Kemp describes began in early 2015, after oil prices first descended to a low point and rebounded on hopes that the downturn would be short-lived.
- Each cycle has lasted for several months…until recently.
- A large increase in short bets began in October 2016 when it looked as if the OPEC deal would not come to fruition. OPEC had talked and talked for much of this year, keeping oil prices afloat, but speculators began to run out of confidence in the weeks leading up to the Vienna summit. Short positions grew from the equivalent of 85 million barrels on October 18 to 196 million barrels on November 15 – investors were betting that OPEC would fail.
- The surprise OPEC deal left short betters out in the cold. As they scrambled for the exits, oil prices shot up. Short positions plummeted to the equivalent of 147…




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