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Is It Time For A Contrarian Bet On Oil?

Oil markets got a modest bounce at the end of last week on headlines that OPEC+ will likely extend their current supply cut agreement and cooperation between the US and Mexico which will likely prevent hefty tariffs. On the OPEC+ front, Saudi Oil Minister Al-Falih met with his Russian counterpart then promised reporters the group would continue to work on supply cuts to counteract the threat of slowing global demand. On the trade side, markets are still highly anxious about the fragile state of the global trade flows and Trump’s Twitter feed, but the threat of the US putting a 5% tariff on all Mexican goods is dormant for now. Unfortunately, overall market sentiment remains negative with hedge funds maintaining an unenthused position on crude while market commentary is increasingly concerned with the global economy’s growth prospects.

First, let’s quickly review what’s going on with hedge funds and oil. It hasn’t been pretty. Speculators have cut their combined net long position in ICE Brent and NYMEX WTI contracts by 45% since late April corresponding with a roughly $10 decrease in prices for both grades. In looking at the amount of length that funds have sold over the last six weeks we see a large amount of market pain which had been driven by expectations that the Trump administration’s decision to end the Iran waiver program would send prices skyrocketing, only to be met with the reality that Iran would continue to export barrels,…




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