After having dipped 5 percent on Wednesday, oil prices continued plunging on Thursday by more than 2 percent, as speculators have started exiting the nearly record long positions in oil futures that they had amassed.
As of 11:54 AM (EST), WTI Crude was trading down 2.27 percent at US$49.14, while Brent was down 2.09 percent at US$52.00.
Having traded in a tight range with low volatility for three months, oil prices are now breaking loose, and WTI is testing the US$49 floor, after it dipped below US$50 for the first time since December. The volatility could create a sense of panic and prompt even more speculators rush to liquidate their long positions, according to The Street.
“It’s a combination of an overhang of (speculative) length and the overhang in inventories ... and the other thing unnerving the market is rapid growth in U.S. crude production,” Andrew Lebow, senior partner at Commodity Research Group in Darien, Connecticut, told Reuters on Wednesday.
Apart from the run for exit from the massive long positions, oil prices were further dampened by the huge U.S. crude oil inventories and rising U.S. crude production and rig count.
Until very recently, OPEC’s supply-cut agreement was putting a floor under the oil prices while U.S. shale capped large price gains. Now the tight range in which oil was trading is unraveling, and speculators that had held onto hope for higher prices are jumping ship.
OPEC is probably already questioning not only whether the production cut would help clear the global gut, but also whether the efforts to cap the cartel’s output should be intensified, with deeper cuts extended by the end of the year.
“The discussion will now center around whether or not Saudi Arabia is willing to give back market share to U.S. producers ... or are they ready for yet another round of the market share war,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, told Reuters on Thursday.
By Tsvetana Paraskova for Oilprice.com
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