More Bearish Forecasts for Crude As Hedge Funds Liquidate their Bullish Positions

by Ship & Bunker News Team
Thursday April 6, 2017

More bearish predictions of where oil is headed came Wednesday in the form of RJO Futures forecasting West Texas Intermediate to be stuck in the $47 to $53 per barrel range for the near future.

Even before Wednesday's disappointing market settlement due to the Energy Information Agency reporting that U.S. stockpiles have in fact increased rather than decreased as widely expected, Phillip Streible, senior market strategist at RJO, told Bloomberg, "I think $53 is going to be the high end of the range; $47 if we just see the floor drop."

Presumably speaking before the full extent of the EIA data was revealed, Streible said in justifying his position, "We are expecting a drawdown of 700,000 barrels; we did see a drawdown yesterday of 1.7 million, but remember, your oil inventory data is floating 35 percent above the five year average, so that is one element to this."

Another element is gasoline exports: Streible pointed out that "we are pumping about 600,000 barrels when last year it was only 400,000"; and he described a reported increase in U.S. jobs as "a wild card" that would affect oil demand depending on its veracity.

While Streible's predictions are hardly unique or unexpected, they come on the heels of John Kemp, market analyst for Reuters, reporting that hedge funds' net bullish position in Brent and WTI has been cut to 642 million barrels, down from a record 951 million barrels on February 21.

According to an analysis of records published by exchanges and regulators, fund managers have cut their net long position for five consecutive weeks by the equivalent of 309 million barrels and reversed more than half of the extra 529 million barrels of net long positions accumulated between the middle of November and the middle of February.

Kemp writes that this has been going on "amid doubts about the pace and timing of any rebalancing in the oil market."

He concludes, "With most but not all long positions liquidated, and a moderate number of short positions already in the market, the outlook for oil prices now appears more balanced than at any time in the last three months."

Although there are no end of analysts claiming high prices are just around the corner, energy companies such as Petronas are, like the hedge funds and RJO, erring on the side of caution: Wan Zulkiflee Wan Ariffin, chief executive officer at Petronas, told Bloomberg earlier this week, "We developed our budget based on $45 Brent......we thinkĀ  the second half [of this year] will be uncertain on where the oil price will settle."