With oil being one of this year’s worst-performing commodities, it is not surprising that professional speculators, broadly speaking, have largely been short crude for a good portion of 2017. Conversely, just as oil recently started showing incremental signs of bouncing back, traders may have gotten too bullish too quickly on the commodity.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, are each up about 5.4% over the past month. Those moves are encouraging some traders to rapidly changing their views on oil.
“The last couple of weeks have seen some strong indications that the oil market is returning to balance. The latest OPEC meeting with Russia in St. Petersburg on July 24 had Saudi Arabia pledge to further cut its crude exports from this month, and Russia’s Energy Minister said that global inventories have shrunk by 350 million barrels since last December. At the same meeting, Nigeria said it was willing to stop increasing its production once it reaches 1.8 million barrels of crude oil production daily,” according to OilPrice.com.
Late last month, professional traders trimmed bearish oil positions as crude started bouncing back. Still, USO has suffered $852.4 million in outflows since the start of the third quarter.
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While the Organization of Petroleum Exporting Countries are skeptical that demand growth can put a dent into the ongoing supply glut, the oil cartel has made steps to cut down supply to bolster prices. OPEC has already promised to curb production by 1.2 million barrels per day between January this year and March 2018.
“And then, yesterday, bulls were dealt a blow. Three separate surveys, from Reuters, Bloomberg, and Petro-Logistics, suggested OPEC’s July output had grown. The Reuters poll was the most optimistic, pegging the increase at 90,000 bpd. Petro-Logistics estimated it at 145,000 bpd, and Bloomberg’s was the most pessimistic, seeing the increase at 210,000 bpd,” according to OilPrice.com.
Although U.S. shale producers have recently started paring output, it is expected that oil inventories here recently ticked higher, adding to a confounding situation for oil bulls. Bottom line: Production may not be falling rapidly enough to suit some that are traders that are long oil futures.
For more information on the crude oil market, visit our oil category.