Americas News
Crude Breaks Below Key Support Levels, While Bearish Positions Reach 6-Month Highs
Repeating the pattern of past weeks, crude traders on Monday took note of growing U.S. production, trade tensions, and the prospect of the Organization of the Petroleum Exporting Countries (OPEC) boosting output, and sent prices spiraling downward, with U.S. crude hitting an 8 week low.
West Texas Intermediate fell $1.06 to $64.75 per barrel, while Brent plummeted $1.50 to settle at $75.29 per barrel.
Monday's losses were significant in that "We are breaking key levels of support now," according to Phillip Streible, analyst at RJO Futures, who added, "Once we started taking out $65.50 or so, it really started to accelerate: people are not really believing that the rally will continue."
Fundamentals that were previously overlooked by traders seem now to be having an impact, case in point: Monday's market performance was said to have been heavily influenced by Baker Hughes data showing that U.S. drillers added two oil rigs in the week to June 1, bringing the total to 861 (the most since March 2015), as well as Energy Information Administration data showing that U.S. crude production climbed in March to 10.47 million barrels per day (bpd), a monthly record.
But as Bill Baruch, president of Blue Line Futures, pointed out, "The trade tariffs between European Union, Mexico, and Canada and the friction with China are also weighing on crude oil."
As for fear that OPEC will soon boost output in order to offset a perceived market tightening due to radically declining production from members such as Venezuela, "We have about 18 days before we get an official OPEC announcement, and I think the market is just going to watch and wait here," said Brian Larose, technical analyst at ICAP-TA.
Monday's losses, coming on the heels of an extremely volatile past few weeks of trading, lend an uncomfortable gravitas to reports of a bull market turning bearish, such as one provided by CNBC: the new agency noted that hedge funds have increased their bets that oil prices will fall for a third consecutive week, with short positions now at their highest in about six months.
Specifically, money managers have raised their short positions in U.S crude to 50,669 in the latest week, the most since the week ending November 21; simultaneously, hedge funds cut their long positions to 374,904, the lowest level since the week ending October 17.
An identical pattern has unfolded with regards to Brent: wagers against the benchmark increased to 72,430, the biggest volume of bearish bets since the week ending August 1, while long positions were down for a seventh consecutive week at 507,705, the fewest since September 5.
CNBC stated that these numbers are the result of the market focusing on the OPEC meeting this month, and Tamar Essner, director of energy and utilities for Nasdaq Corporate Solutions, was quoted at saying that OPEC has an incentive to let oil prices drift lower before the gathering: "The point is that if oil prices come down ahead of this meeting, there is less need for them to increase [production] as much because the idea was that they would increase [output] because oil prices were getting a little too heated."
However, as is typical with the inherent volatility of the oil market, the bearish sentiment could easily turn on a dime: Essner added that hedge funds could once again reverse course right after the OPEC meeting, because the market has basically baked a one-million-barrels increase into the price of oil, and that discount could unwind if OPEC does not deliver a bigger increase.
