• 4 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 6 minutes UAE says four vessels subjected to 'sabotage' near Fujairah port
  • 13 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 15 minutes Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 10 hours Wonders of Shale- Gas,bringing investments and jobs to the US
  • 32 mins Trump bogged down in Mideast quagmire. US spent $Trillions, lost Thousands of lives, and lost goodwill. FOR WHAT? US interests ? WHAT INTEREST ? . . . . China greatest threat next 50 years.
  • 6 hours Why is Strait of Hormuz the World's Most Important Oil Artery
  • 5 hours California's Oil Industry Collapses Despite Shale Boom
  • 3 hours North Dakota oil output totals 1.39 million b/d in March, up 4% on month: state
  • 1 hour Misunderstanding between USA and Iran the cause of current stand off, I call BS
  • 2 hours Rural and Conservative: Polish Towns Go 'LGBT free' Ahead Of Bitter European Election Campaign
  • 3 hours Global Warming Making The Rich Richer
  • 9 hours IMO2020 To scrub or not to scrub
  • 10 hours Knock-Knock: Aircraft Carrier Seen As Barometer Of Tensions With Iran
  • 14 hours Crude oil?
  • 7 hours Iceland Reducing Gas Stations By Half By 2025
  • 2 hours Compensation For A Trade War: Argentina’s Financial Crisis Creates An Opportunity For China
  • 10 hours "We cannot be relying on fossil fuels to burn as an energy source at all in our country" - Canadian NDP Political Leader
Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Trending Discussions

Oil Markets Move From ‘Undecided’ To ‘Bullish’

The growing optimism in the oil market in recent weeks has resulted in tangible evidence that traders expect an increasingly tighter crude market going forward this year.

Oil market participants now expect OPEC’s cuts and U.S. sanctions on Venezuela and Iran to continue to tighten the market through the end of 2019.

The evidence is that the Brent Crude calendar spread for the second half of this year has flipped into a backwardation of as high as US$0.90 a barrel, compared to a contango of US$0.70 at the end of last year, Reuters market analyst John Kemp notes.

Backwardation is the market situation in which front-month prices are trading at a premium compared to prices further out in the future—a sign of a tighter or undersupplied market. In the opposite structure—contango—front-month prices are lower than prices out in the future months—pointing to a crude oil oversupply and making storing oil for future sales profitable.

So the shift to backwardation—which was one of OPEC’s officially stated goals when it started to limit oil supply in 2017 in tandem with Russia—signals that many oil market participants expect a tighter oil market in the second half of 2019, and as a result, higher oil prices.

The recent flip to backwardation in Brent Crude’s calendar spread was also helped by the return of bullish hedge fund positioning in Brent’s near-month futures contracts, Kemp argues. Portfolio managers usually focus their bets on contracts closer in time because of the higher liquidity. So the return of bullish speculators also contributed to the shift to backwardation for the contracts further out in time, those for later in 2019.

Related: 2 Reasons Why Big Oil Isn’t Rushing Into Renewables

Over the past two weeks, the sentiment on the oil market has been increasingly bullish. First, Saudi Arabia signaled it would cut in March 500,000 bpd more than its share of the cuts in the OPEC deal and would further slash exports to below 7 million bpd. Then, signs started to emerge that the U.S. and China could reach some sort of a trade deal, thus potentially averting the much-feared global economic slowdown that could dent oil demand. Next, there are the U.S. sanctions on Iran and Venezuela restricting supply, while there is uncertainty how much additional crude barrels will be choked off from those two OPEC members as Nicolas Maduro is digging in to cling to power and as there isn’t any certainty how the U.S. would approach the waivers on Iran’s oil customers once they expire in early May 2019.

So, hedge fund and other money managers boosted their long positions in Brent by 10 percent in the week to February 12, the latest available data, and this was the highest rise in bullish bets since late August 2018, according to exchange data compiled by Bloomberg. Bets that Brent Crude prices will drop declined by 5.5 percent in the most recent reporting week. This was the first clear signal this year that portfolio managers are turning bullish on oil prices. The net long position in Brent—the difference between bets that prices will rise and bets on a drop—has increased in the previous weeks as well, but mostly as a result of the closing of the many shorts from late 2018, rather than a renewed bullishness that oil prices would be rallying.

In the week to February 5, portfolio managers added more long positions on Brent Crude, but short positions also rose for the first time this year. Although the speculative positioning in the week resulted in a slight rise in the combined net long position, the increase in short positions suggested that hedge funds were much more undecided where oil prices will be heading next.

Related: Green New Deal Critics See Red

In the week to February 12, however, the hedge funds’ general oil market mood shifted from undecided to bullish, with speculative buying in the near-term Brent contracts accelerating the backwardation—the perception that the oil market will be tighter in the second half of the year.

Saudi Energy Minister Khalid al-Falih said this week that he hoped the market would return to balance by April, reiterating that OPEC leader’s resolve to do whatever it takes to rebalance supply and demand is “unquestionable.”

Saudi Arabia and OPEC’s cuts, sanctions on Venezuela and Iran, and hopes that a U.S.-China trade war would be averted are all boosting the bullish sentiment on the oil market. Yet, surging U.S. oil production and a return of fears of a global economic and oil demand growth slowdown could sour market sentiment again.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment
  • Mamdouh Salameh on February 25 2019 said:
    Bullish influences in the global oil market are currently outgunning the bearish influences.

    OPEC+ adherence to the production cuts, Saudi projected steeper cuts in March, indications that the US and China are heading towards a settlement of their trade war and robust fundamentals of the global economy are starting to overwhelm the bearish influences of the US sanctions on Iran and Venezuela.

    The United States has no alternative but to renew the sanction waivers it issued to the eight biggest buyers of Iranian crude or issue new ones when they expire in May if for no other reason than to use them as a fig leaf to mask the fact that the Trump administration’s zero oil exports option is a bridge too far and that the sanctions have failed miserably to cost Iran the loss of even a single barrel of oil.

    The US sanctions on Venezuela have not fared better either. The loss of 500,000 barrels a day (b/d) of Venezuelan oil exports to the US could easily be re-directed towards China, India, Turkey and many other buyers. Moreover, Venezuela can easily replace the diluent it used to import from the US to blend with its extra-heavy oil with another from Russia, China and even Iran.

    Oil prices have definitely turned more bullish of recent times and this is going to translate into more price surges.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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