More Crude Losses as Bulls Exit the Market

A well-supplied market will keep prices down. File Image / Pixabay

With Russia over the weekend stating there's no reason to freeze or cut its oil production levels, and with global economic concerns ever-present in the minds of traders, Monday saw yet another drop in crude prices, with West Texas Intermediate down 55 cents to $67.04 and Brent down 8 cents to $77.54 per barrel.

Gene McGillian, director of market research at Tradition Energy, remarked, "When the Russians start talking about keeping the production levels high and even the possibility that they need to increase it because of a possible tightness in supply, that brought on some selling pressure."

Additionally, hedge fund managers have reportedly cut their bullish positions in crude futures and options for four weeks in a row to their lowest since July 2017, due to an uncertain demand outlook and other factors: in an editorial for Reuters, John Kemp, founding partner at Again Capital, wrote that "Rising oil production from Saudi Arabia, the United Arab Emirates, Kuwait, and Russia has eased concerns about the availability of supplies once U.S. sanctions on Iran are re-imposed in November."

He added, "Portfolio managers' combined positions in crude and refined products climbed from a low of 310 million barrels at the end of June 2017 to almost 1.5 billion barrels in late January but have since fallen back to just over half that level."

Other analysts were verbose in explaining the relatively straightforward scenario that despite persistent doomsday prediction from their own ranks, the crude market is well supplied and every indication is that it will continue to be so, thus effectively keeping a lid on prices.

Phil Streible, senior market strategist at RJO Futures, told Bloomberg television that, "One would expect with the Dow Jones up over 200 points we would expect oil prices to rebound; the fact they haven't really tells you two different things are going on, one there's been a sector rotation out of the oil market and oil looks to continue its path lower.

"And if you look at the supply side of things....Saudi Arabia has really increased their production, it doesn't look like they're going to halt that increased production anytime soon; they've really grabbed a lot of market share selling oil to China, they're really stolen from the U.S. because the U.S. isn't exporting anything to China right now; and if you look internally at the U.S., our imports have rallied for two straight weeks,[and] if you look at the five year stockpiles we're higher than that average, so crude oil prices look like they've got a lot of pressure ahead."

The analytical community of late seems frustrated that traders aren't taking as seriously as they used to predictions of a market tightening - and skyrocketing prices - due to the Iran sanctions: last week Phil Flynn, senior market analyst at Price Futures Group Inc., huffed that "The market has to wake up to the fact that Iranian sanctions are happening November 4: that's just a couple weeks away."