2018 was largely the year of the bull market that wasn’t. As the Trump administration planned sanctions on Iran’s oil prices rose from $70 in January to $86 in October. Then, the White House reversed course by issuing ‘waivers’ to major buyers of Iranian oil and the market ended the year near $52. Hedge funds, meanwhile, were buying the KoolAid all along and accumulated their biggest-ever long position in ICE Brent futures and options only to have to cut that position by 78% as prices fell.
Apparently traders are a little bit less gullible in 2019 as markets are consumed by fears of weak global demand growth opposite sustained production growth in the US. This new attitude really came to life last week as the largest-ever intra-day rally in the oil market was met by selling from speculators.
To back up for a moment, on the weekend of September 14th Iran-backed Yemeni rebels executed a massive drone strike on Saudi oil production which knocked out more than 5.5m bpd of production. When traders came to work on Sunday night they sent prices skyrocketing from the close of $60 on the previous Friday to $72 on the week’s opening print. It was a truly unique event in the market and something that even the longest-tenured oil traders had never seen before.
One would think that a historic upward shift in prices might be met by net buying from speculators as short losing short positions are covered and new buyers come in to ride the momentum.…