Analysts optimistic on oil but the price stays steady

Unsplash+/Getty Images

• Hedge funds upbeat on short-term outlook
• ‘Speculators rushed into crude’ in June
• Price remains steady at around $80

Global hedge funds and money managers have become increasingly optimistic about the short term outlook for oil prices in recent months, despite the oil price remaining flat at around $80 a barrel.

The net length held by hedge funds and other money managers in WTI (West Texas Intermediate) futures and options has risen to its highest in 10 months, to an equivalent of more than 263 million barrels, according to data consultancy Kpler based on data from the Commodity Futures Trading Commission (CFTC).

The CFTC publishes weekly commitments by traders and reports that measure the net long and short positions taken by speculative and commercial traders.  

---

---

In June, “speculators rushed into crude oil,” said Ole Hansen, Saxo Bank’s head of commodities strategy.

This was as a result of the strong summer demand for transport and cooling. Concerns about hurricane season may also have supported prices.

 “What is particularly striking about this is that short positions held are back to being razor-thin,” said Matt Stanley, Kpler’s analyst in Dubai.

Stanley said shrinking storage levels in Cushing – the town in Oklahoma that serves as the delivery point for the US benchmark WTI – “might have played a role”.

• Non-oil discounting brings Saudi inflation down
• IMF lowers Saudi growth forecast over oil output cuts
• Gulf oil producers anticipate peak in Chinese demand

Vijay Valecha, Century Financial’s chief investment officer in Dubai said tight supply was also a factor in the global price.

Despite optimism from hedge funds and traders, oil prices remained relatively flat, even as geopolitical tensions in the Middle East escalated following Israel’s strike on the Yemeni port of Hodeidah on July 21, and the ongoing shipping disruptions in the Red Sea by the Houthis.

Brent traded at $82.56 a barrel on Tuesday afternoon, while WTI traded at $78.58 a barrel. Both benchmarks were up around 0.25 percent.

The potential for an extension of maritime hostilities into the Eastern Mediterranean could add a layer of geopolitical risk, analysts have said. 

Israel’s attack on Hodeidah was launched in response to a drone strike by the Houthis that hit Tel Aviv on Friday.

China holds sway

China, the world’s largest oil importer and first client of Saudi crude is also a factor. It seems unlikely that prices could surge above $90 a barrel, as China’s weaker than expected economic growth of 4.7 percent in the second quarter of the year raised concerns about its oil imports. 

Morgan Stanley predicts a surplus for the oil market in 2025, with Brent prices declining into the mid-to-high $70s.

However, analysts don’t expect changes in Opec’s output policy at August’s mini ministerial meeting.