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Fundamentals Starting to Underpin Oil Price Rally

Fundamentals Starting to Underpin Oil Price Rally

Friday, May 20, 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. Speculators start to liquidate long bets

(Click to enlarge)

- All of the oil price metrics can’t seem to get on the same page at the same time. A massive increase in net-long speculative bets since the beginning of the year occurred as the supply/demand fundamentals only changed incrementally.
- But just as some of the fundamentals started to substantially improve – in part due to major unexpected outages – oil speculators have started to retreat.
- The record net-long position started to be unwound in early May. Net-long positions for Brent and WTI fell by 43 million barrels for the week ending on May 3, or a roughly 13 percent decline.
- On the other hand, the data on speculative positions is released with a bit of a lag, so the bull run could regain momentum. Huge supply outages in Canada and Nigeria are hard to ignore.
- As Reuters notes, stagnant or falling supply is bumping up against strong demand for crude. As a result, the market contango is shrinking, refining margins are widening, and front-month futures are rising.
- The markets are essentially driving on a road by looking through the…

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