EMEA News
Data Indicates Oil Market May Have Bottomed Out - But There Is No Indication of an Upswing Either
New data, along with more speculation, suggests that oil prices may have finally hit bottom after a long and painful downward spiral; however, other data is equally suggestive that it won't be followed by a significant upside.
In covering the week through June 20, the U.S. Commodity Futures Trading Commission notes that hedge funds and other money managers have cut their long positions (bets that crude prices will rise) to the lowest level since November, while at the same time short positions (bets that prices will fall) have risen toward record highs.
Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions, said, "We are not yet at the highest level of short positions on record, but nearing it, which means we could start to move higher in the back half of the year."
Essner added that while the market could fall further than the recent 10-month intra day low of $42.05, a move below $40 per barrel likely wouldn't last long - and she doesn't see the market dropping much lower than current levels.
John Kilduff, founding partner at Again Capital, pointed out that the risk of opening new short positions is beginning to outweigh the potential reward, especially considering potential geopolitical shock from the Middle East could send prices significantly higher: "If you're initiating a short position now, you missed a lot of the ride down."
A decidedly less analytic indication that the market has bottomed out was offered by Bjarne Schieldrop, commodities strategist for SEB, who told Reuters, "We're at a peak of bearish headlines and that's usually a sign that the bottom is near"; indeed, Reuters notes that Google Trends shows queries for "oil bear market' on its search engine climbing to their highest since mid-January 2016, "exactly the point at which the Brent price hit a near-13 year low of $27 a barrel before rallying."
The trouble is, few experts see a rally occurring anytime soon, Kilduff's prediction of a major Middle Eastern conflict notwithstanding: Alex Krueger, chief executive officer for First Reserve Corp., echoed the sentiments of many of his colleagues by telling Bloomberg television, "We don't necessarily see a catalyst for commodity prices moving up for the near term at least."
Many factors account for prices staying put, including Saudi Arabia oil exports, which ClipperData reports is back on the rise after a brief drop in April and May and just one month after the Organization of the Petroleum Exporting Countries (OPEC) agreed to extend its output reduction initiative to next year.
Matt Smith, director of commodity research at ClipperData, said, "We're seeing a fairly widespread rebound in June numbers; that's been the trend of OPEC loadings all year: move to compliance and move out of it from an export perspective."
He added that loadings are also rising in the United Arab Emirates, Iraq, and Angola.
As if to add insult to injury, unnamed OPEC delegates told Reuters that contrary to rumours, the cartel is in no rush to make deeper cuts that might bring the market closer to rebalance; instead, "They will look at this issue most probably in the upcoming meeting in Russia in July."
If there is one certainly about traders, it is that they have abandoned all hope of OPEC's efficacy on the world stage: Julian Lee, oil strategist for Bloomberg Gadfly, wrote earlier this week that the group "looks more fragile than at any point in nearly 30 years."
