• 1 day PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 1 day Schlumberger Warns Of Moderating Investment In North America
  • 1 day 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
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 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
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 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
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 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
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 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

Iran Ready For OPEC Oil Deal Extension

Iran is ready to take…

Alt Text

This Key Data Points At Strong U.S. Oil Demand

U.S. Gasoline prices haven’t risen…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Are Oil Bulls About To Be Burned Again?

Oil

Oil investors have grown more optimistic as of late, as oil prices have moved back to $50 per barrel. The market appears to be on sounder footing, suggesting that things will gradually tighten for the rest of the year. But it is unclear how far oil prices can really move above today’s position.

Hedge funds and other money managers have begun buying up long positions on oil futures, a sign of growing bullishness. Reuters analyst John Kemp argues that the positioning of hedge funds has entered the third bullish phase of 2017, after two previous cycles ran their course earlier this year. In fact, the most recent data saw the largest weekly increase in net-long positions so far this year, and interestingly, Kemp points out that the net-long build is due to new long positions, rather than simply just a reduction of shorts. In other words, investors are betting that crude oil prices will rise.

And for good reason. U.S. shale production growth has slowed, as has the rig count. Inventories have finally posted significant declines, which appear to be ongoing. Some high-profile shale drillers have announced spending cuts. And Saudi Arabia is moving to cut oil exports to Asia, a sign that OPEC’s most powerful member intends to do its best to accelerate market tightening.

Related: Natural Gas Prices Poised To Rise As Exports Boom

Plus, although OPEC compliance has slipped in the past two months, the cartel met this week to figure out a way to hold the laggards to their word. Nothing particularly concrete came from the meeting, but the group seems determined not to let things fall apart. "Discussions were conducted in a constructive atmosphere and proved fruitful," OPEC said in a statement. "The conclusions reached with the countries at the meeting will help facilitate full conformity.” Few details were provided.

But can things continue on this upward trend? “The biggest question now is, was that July rally just a lot of short covering, or does it have staying power?” Mark Anderle, director of supply and trading at TAC Energy, told the Wall Street Journal. “The market’s just content to go sideways and figure that out.”

Despite the newfound optimism, analysts do not see much upside from here. For example, Barclays said in a recent research note that the rally is probably unsustainable. "Prices have moved higher, due to a perfect combination of a favorable macro environment, a seasonal uptick in consumption, continued inventory drawdowns, and geopolitical unrest," the investment bank wrote. "Certain factors that supported prices in July are unlikely to last, and we expect a downward correction during this quarter."

The recent price gains, at least in part, were driven by greater bullishness from speculators, but absent a more dramatic improvement in the underlying fundamentals, those speculative movements can only take things so far. "Fundamentals remain shaky this quarter, therefore any rally that occurs before more substantive inventory draws would be short-lived,” Barclays analysts added.

Related: The $50 Billion Backlog Of U.S. Energy Projects

One particular concern for oil bulls is the fact that U.S. shale producers are likely to turn up the pace of hedging with oil at $50 per barrel, locking in future production and ensuring that new supply comes online. Citigroup says that a new round of hedging is already underway. With the certainty of oil sales for 2018 in hand, shale producers can proceed with more drilling. That means more supply will be forthcoming, capping the price rally.

Moreover, without visible signs of ongoing improvement in the physical market, investors could start to sour on prices again. As John Kemp of Reuters points out, the liquidation of short bets on oil futures and the sudden increase of longs ultimately means that “it may prove tough to sustain the recent upward momentum in crude and product prices.” When investors take things too far, the pendulum tends to swing back. With speculators having already staked out bullish positions, there is less room to run on the upside.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Citizen Oil on August 10 2017 said:
    Nothing new here. We are beating a dead horse as everybody knows this is range bound. These so called analysts are the same ones that didn't see the downturn coming and predicted $ 200 oil. Look at the archives and when we went to $ 75 they said that was unsustainable and we'd never stay that low. Take their "expertise" with a grain of salt. Will all their knowledge and staring at a screen for 10 hours a day they are right 5% more of the time than someone who casually studies the market. Andy Hall the genius Oil God makes a bet that works in 2008 and then predicts the same after the 2014 crash . Markets are rarely predictable . Past performance not indicative of future performance. LOL

Leave a comment




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