• 5 minutes Closing the circle around Saudi Arabia: Where did Khashoggi disappear?
  • 10 minutes Iranian Sanctions - What Are The Facts?
  • 15 minutes U.N. About Climate Change: World Must Take 'Unprecedented' Steps To Avert Worst Effects
  • 4 hours Can the World Survive without Saudi Oil?
  • 2 hours Sears files Chapter 11
  • 3 hours Natural disasters and US deficit
  • 20 hours U.S. - Saudi Arabia: President Trump Says Saudi Arabia's King Wouldn't Survive "Two Weeks" Without U.S. Backing
  • 4 hours China Is the Climate-Change Battleground
  • 19 hours How High Can Oil Prices Rise? (Part 2 of my previous thread)
  • 2 days COLORADO FOCUS: Stocks to Watch Prior to Midterms
  • 1 day How Long Until We Have Working Nuclear Fusion Reactor?
  • 2 days $70 More Likely Than $100 - YeeeeeeHaaaaa
  • 13 hours Threat: Iran warns U.S, Israel to expect a 'devastating' revenge
  • 17 hours German Voters Set to Punish Merkel’s Conservative Bloc
  • 18 hours Saudi A Threatens to Block UN Climate Report
  • 2 days China Tariff Threatens U.S. LNG Boom
Alt Text

This Merger Creates A New Oilfield Services Giant

Two of the leading offshore…

Alt Text

Barclays: $70 More Likely Than $100

While there have been plenty…

Alt Text

Oil Price Rally Boosts Electric Car Sales

While $100 oil is believed…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

More Info

Trending Discussions

Is This The Most Bullish Oil Market Of All Time?

Bullish

Money managers are overwhelmingly betting that oil prices will continue to rise in the short term as geopolitical wild cards trump concerns that U.S. shale and other non-OPEC supply growth could offset part of OPEC’s efforts to further tighten the oil market.

The longs to shorts ratio in the six major petroleum contracts rose to record highs last week—a sign that hedge funds and other portfolio managers are certain that the direction for oil prices in the coming weeks is up.

In addition, over the past two weeks, options traders have boosted their bets on Brent rising to $80 a barrel, and calls on Brent at $80 is the most crowded options trade on the ICE Futures Europe exchange, followed by call options on Brent at $70 a distant second. Options traders hold nearly 137 million barrels worth of $80 Brent call options, a 37-percent jump from two weeks ago, Bloomberg reports.

In the six most important petroleum contracts, money managers held long to short positions in a ratio of nearly 14:1 last week, compared to a 12:1 ratio at January 23, when portfolio managers held the record net long position in oil — 1.484 billion barrels, according to regulators and exchanges data compiled by Reuters market analyst John Kemp.

For the week to April 20, money managers held a net long position of 1.411 billion barrels of Brent, NYMEX and ICE WTI, U.S. gasoline, U.S. heating oil, and European gasoil—close to the record net long position from January.

In Brent and WTI only, money managers held last week the most lopsided position ever, with 15 longs for every short. Hedge funds’ ratio of long to short positions in Brent and WTI jumped to 15:1 from 13.2:1 the prior week, Kemp has calculated using exchanges and regulators data. Related: Canada’s Oil Patch To Turn Profitable In 2018

While this extremely lopsided long-short position could lead to a violent correction if and when fund managers start to liquidate some of the longs, analysts (and apparently money managers) see geopolitical risks as the key driver of oil prices in the coming weeks.

“For oil prices, the path of least resistance remains higher. Who wants to short the market in size in the current geopolitical climate?” Thibaut Remoundos, founder of Commodities Trading Corporation, which advises on hedging strategies, tells Bloomberg.

The current geopolitical climate has many wild cards.

Venezuela is collapsing and the only unknown here is how low its oil production will further plunge—and how fast it will do so. The country is holding a presidential election on May 20, which the U.S. and several Latin American nations say they will not recognize. New sanctions on Venezuela could follow, including a possible ban on U.S. light oil exports that Venezuela uses to blend its heavy oil to move it through pipelines. Even without sanctions on its oil industry, Venezuela will continue to lose dozens of thousands of barrels per day of oil production each month, analysts say.

Iran is another wild card—May 12 is the deadline for U.S. President Donald Trump to decide whether to waive sanctions on Iran as part of the nuclear deal. Analysts diverge on the probability of re-imposition of sanctions on Iran, the actual impact on Iranian oil exports, and whether a potential loss of Iranian oil barrels has already been priced in.

Yet, this is a wild card looming over the oil market, and it’s one of several in the Middle East, with possible escalation of the conflicts in Syria and Yemen also adding to the geopolitical premium risk.

This quarter, and particularly the month of May, has a lot of geopolitical supply risks, including in the Middle East, North Africa, West Africa, and Latin America, according to Eric Lee, a Citi energy strategist. If supply risks materialize, money managers—with their near-record longs—may be well-positioned for the upside, but if a bearish catalyst kicks in, there could be sharp moves down, Lee told Bloomberg.

OPEC’s drive to push up oil prices and keep them high creates a pressure that in 2019 supply growth could be much more than anticipated, Lee noted.

Related: Saudi Arabia’s $100 Oil Dilemma

OPEC’s de facto leader Saudi Arabia “is going to the whip to try to get prices higher”, John Kilduff, founding partner at Again Capital, told CNBC last week, commenting on the reports that the Saudis are pushing for oil at $80-100. Saudi Arabia is capitalizing on their own production restraint, help from other non-OPEC producers, robust global demand, and a “total mess” in Venezuela, according Kilduff.

“Now the Saudis are really again going for the jugular here and trying to goose the price higher,” the strategist said, warning that higher oil prices will not only spur more U.S. shale that will hedge to lock in much higher prices, but will also incentivize deepwater U.S. and deepwater Brazil, for example.  

Although geopolitical risks and bullish oil demand growth projections currently outweigh bearish factors, if money managers start to exit the extremely overstretched longs, the rally could come to an abrupt end.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment
  • Kr55 on April 24 2018 said:
    Don't forget to look at the commercial long/short positions. Commercial shorts are almost at 2M contracts, while commercial longs are at 1.2M.

    One of the greatest moves up in oil happened because commercial shorts decided they had no choice but to bail on their short hedges because they were scared of how much money they were going to lose out on selling their old at lousy prices. Right now loads of those commercial shorts are a lock in for WTI around 50 bucks, which looks just awful right now. If you think oil will head up another 10 from here, that is a tough pill to swallow, losing another 10 on top of the 15-20 you're already giving up.

    And who holds the key to getting out of those short hedges? The spec longs can certainly help :)
  • Neil Dusseault on April 24 2018 said:
    I just want to remind anyone reading this of three (3) very important factors:

    1) Traders are the ones that move prices--consider this quote from the article above:

    "...hedge funds and other portfolio managers are certain that the direction for oil prices in the coming weeks is up."

    So, they are not predicting that the price will go up--the are instead making it happen. The market is not some independent machine like a train that you get on and off.

    2) Therefore, if hedge funds are driving up prices for the rest of the world to pay for, this means that a small group of privileged people using high-speed connections and algorithms create trends that others attempt to profit off of, again, at everyone else's expense.

    So then, why do we pretend to make a market when actually the price for a widely used commodity is determined by a small group of people? It seems against democracy.

    3) The last time we had this "lopsided" ratio of bulls to bears in oil was approx. 1 year ago, when prices suddenly plummeted one night almost $2/bbl (WTI) in a matter of seconds (called a "flash crash"), triggered by algorithmic trading. Think this last one through very well before considering placing your order for a long position in times like this.
  • Abimbola Abayomi Olasehinde on April 25 2018 said:
    Scarce resources is what affecting each one of us and the effect of 1989.
  • Mamdouh G Salameh on April 25 2018 said:
    I would not go as far as to describe the current global oil market as the most bullish of all time. Because if this was the case, oil prices would have shot up beyond $100 a barrel by now.

    However, the market is bullish enough to sustain an oil price of $75-$80 in 2018, $80-$85 in 2019 and $100 or higher by 2020 provided the prevailing positive fundamentals continue into 2020.

    Analysts and contributors to the oilprice.com keep exaggerating the impact of the current geopolitical concerns on oil prices. And I keep telling them in my comments that all these concerns have already been factored in long time ago. Therefore, their impact on oil prices could not be more than $1-$2 a barrel.

    Whilst Venezuelan oil production is declining slowly, there is no geopolitical risk of Venezuela’s economy and its oil industry collapsing. China and Russia which are owed billions of dollars by Venezuela will not let that happen.

    A re-introduction of sanctions on Iran will neither impact on the global oil market nor on oil prices. Iran’s oil exports will not lose a single barrel of oil as a result of the forthcoming sanctions. Moreover, Iran will be pricing its oil exports and paid for its exports by the petro-yuan thus bypassing the petrodollar and also nullifying US sanctions.

    Moreover, the European Union (EU) is not going to walk away from the Iran nuclear deal and therefore it will not be imposing any sanctions on Iran thus further weakening US sanctions.

    OPEC is absolutely right to be guided by a sound economic principle meaning they should always try to maximize the return on their finite assets aiming for the highest prices the global economy could tolerate. This price could be anywhere between $70 and £130 a barrel. If oil prices rise too high, the oil market will tell us in no uncertain terms and will take corrective measures as happened after oil prices reached $147 in 2008.

    While high oil prices could enhance US shale oil production, it will hardly register against the current bullish market. As for pre-salt oil production in Brazil, it will have no impact whatsoever on oil prices and the oil market though it may make Brazil self-sufficient in oil beyond 2022.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Paul on April 26 2018 said:
    When I close my eyes and look into the future, I see oil prices rising to the highest levels in history and interest rates will be 2.5x the current level.

    Returning to the now, to suggest that OPEC is anything but desperate for higher oil prices is either a shill or uniformed loon.

    Peace around the world and more open markets for all goods and services will lead to dramatically higher demand for oil and its bi-products in the decades to come. In the absence of higher oil prices, demand will surely not be met for lack of capital investment and therefore prices must rise in the future.

    Expect inflation to rise such that the central banks are able to continue to lift interest rates for as long as oil prices are rising and not declining for a sustained period of time. Debt in the US oil patch is being more conservatively managed and as the cost of capital rises due to higher interest rates, only higher oil prices will allow the expansion to increase in volume.

    For a wide range of prices, 85-115, the world can expand GDP essentially at an optimal rate where petro-dollars are strong and reinvesting. Anything above or below these prices undermines the forward potential of this nascent expansion.

    Rising interest rates in this case will serve as the most prescient mechanism to transfer wealth from the investor class to the saver class. Savers have been denied any income from their deposits while the investor class including only the wealthiest 3% of the world population own a vast majority of the assets in the world. This imbalance can be rectified by higher interest rates, so expect it and expect it will be painful for the few and fruitful for the masses.

    While the last 10 years have seen the cost of extraction decline, extraction costs for the last barrel consumed for the day have bottomed out and will rise slowly in the future.

    As the Americas open up and explore and mine the reserves from Alaska to Argentina, expect the other half of the world to be in decline and/or in the same mess as always and no longer our problem.

    Enjoy the show, thank you for thinking.
  • CorvetteKid on April 29 2018 said:
    MGS, the Venezuelan economy is/has imploded (take your pick) and the same can be said about their oil production.

    You are dead wrong on the impact of the 1-time outages. Several at once -- Venezuela, Libya, Nigeria, etc. -- can easily lead to a $10-$15 boost in the price of oil. It was all the 1-timers (which weren't really 1-timers since they kept happening year-after-year) which kept oil prices over $100 from 2012-2014.

    Once demand weakened, and once a few of the supply disruptions abated, combined with rising shale, and there you have oil going from $110 to $26 in 18 months.
  • Tim Turley on April 30 2018 said:
    As inventories rebalance, the price becomes more sensitive to one-off geopolitical or supply side events, of which there are several looming that could cause upside resistance levels to be taken out. Let’s see how much it pops when the Iran nuke deal is rescinded.

Leave a comment




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