• 2 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 2 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 2 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 2 days Schlumberger Warns Of Moderating Investment In North America
  • 2 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 3 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 3 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 3 days British Utility Companies Brace For Major Reforms
  • 3 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 4 days Kinder Morgan Warns About Trans Mountain Delays
  • 4 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 4 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 4 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 5 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 5 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 5 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 6 days OPEC Oil Deal Compliance Falls To 86%
  • 6 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 6 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

The Approaching U.S. Energy-Economic Crisis

The connection between energy and…

Are Hedge Funds Positioning For An OPEC Disappointment?

Offshore oil rig

The OPEC meeting in Algiers at the end of the month and the cooperation pact between Saudi Arabia and Russia hasn’t convinced the hedge funds that oil will breakout of its overhead resistance. The hedge funds and money managers have therefore reduced their net long positions by 80 million barrels in the week ending September 6, according to positioning data from regulators and exchanges, reports Reuters.

Last week, the bulls have only cut 23 million barrels of their long positions, indicating that the majority of oil bulls are still hopeful that higher oil prices are in sight. While the bulls have reduced their net long positions by around 100 million barrels in the previous two weeks, the existing positions still have a bullish edge.

The hedge funds that have closed their positions have pocketed handsome returns, as oil has rallied nearly 23 percent from the recent lows of just under $40 a barrel. They would need more concrete evidence of a deal going through in Algeria before we see more long positions being taken.

On the other hand, the shorts who were forced to cover their positions in the massive short squeeze of 56,907 futures and options contracts in the week ended August 1—the biggest since 2006—following rumors of a production freeze discussion by the OPEC in Algiers are sensing an opportunity to short again.

Mixed signals from the OPEC nations and a lack of commitment from the larger oil producers indicate that the Algiers meeting could be headed the Doha way. Therefore, the hedge funds have increased their short positions by 56 million barrels.

The analysts of the 12 investment banks surveyed monthly by The Wall Street Journal have kept their forecasts unchanged. They expect Brent crude to average $57 a barrel next year, a small increase of less than a dollar over the previous month’s survey. The forecast for WTI crude remained unchanged at $55 a barrel next year. Related: Record Year For Solar Expected As Installations Surge 43%

While the bulls are hoping that a production freeze this time in Algiers will propel oil higher above the resistance level of $50 to $52 a barrel, the bears sense that the possibility of a deal is dim, which will likely lead to a liquidation of long positions, hence they are willing to add short positions near the resistance levels, as they have a small stop loss above.

Because of long additions near the $40 a barrel mark and short additions near the $50 a barrel mark, both the levels are acting as strong supports and strong resistance levels. It is unlikely that either position will break without favorable news.

“What we’re going to need to see is some serious discipline from the OPEC producers” in order for prices to emerge from their trading range, said Virendra Chauhan, oil analyst at Energy Aspects. “In order to move into that $55 to $60 range, you need to see a change in tone,” reports Market Watch. Related: Is China Deliberately Trying To De-Rail The Russia/Saudi Oil Deal?

(Click to enlarge)

John Kemp, a Reuters market analyst points out that the hedge funds have accumulated and liquidated short positions in distinct cycles since the start of 2015, which have “closely mirrored the fall and then rise of oil prices,” as shown in the chart above.

The Algiers meeting should provide a definitive trend to the oil markets, either on the way up or the way down, depending on whether a meaningful deal is struck or they only attempt to jawbone oil prices again.

By Rakesh Upadhyay for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News