Crude Oil Bulls Plunge Back In as Trade-War Pendulum Swings

Oil traders took heart from signs that trade tensions are easing and OPEC supply cuts are here to stay, even as looming concerns about demand keep prices under pressure.

Shaking off a forecast for slower oil-demand growth this year, money managers focused on signals from the new Saudi energy minister that he’s committed to the reductions. Investors bowed out of bets on lower prices, increasing net-long positions in Brent crude by 21%, the most since December 2016, and also piled into bullish wagers on West Texas Intermediate.

A report that China may purchase more U.S. agricultural goods was seen to help trade talks, while OPEC and its allies paved the way for potential deeper cuts at its December meeting. Still, Brent sank 2.1% and WTI dropped 3% last week as the departure of U.S. National Security Advisor John Bolton raised the possibility of a thaw in U.S.-Iran relations.

“There was definitely some upside momentum recently, but the risk is still on the downside,” said John Kilduff, a partner at Again Capital LLC. “You can’t ignore the inventory data, but uncertainties over Iran are still causing the market to be choppy. And there’s the economic slowdown risk.”

With WTI bouncing in a tight band of around $53 to $58 a barrel since mid-August, trade sentiment has swung with the latest headlines and tweets from U.S. President Donald Trump.

The International Energy Agency said in a report last week that OPEC and its allies will continue facing challenges in balancing the market as production surges from its competitors. That would include the U.S., where output is set to grow by 1.3 million barrels a day next year at current prices.

Net-length in WTI — the difference between wagers on an increase and those on a decline — rebounded by 20% to 201,168 options and futures in the week ended Sept. 10, the U.S. Commodity Futures Trading Commission said. Long-only bets rose 5.7%, the highest in two months, while shorts fell 31%, the biggest weekly retreat this year.
Source: Bloomberg