Hedge Fund once again buys oil once after a break earlier in March, and signals restorative optimism about US-China relations and reduced global economy concerns, says Reuters John Kemp in his latest column on hedge funds and oil spills. Even with the renewed optimism, the purchase is still cautious, says Kemp.
Crude oil prices have risen quite steadily recently, helped higher by OPEC's production cuts and US sanctions against Venezuela and Iran, while reports from the negotiating table between Washington and Beijing have been positive. Still, a further price increase is far from certain despite a recent report that said Saudi Arabia needed Brent over $ 70 to balance its budget this year.
For this purpose, the Kingdom has cut more production than it was obliged to, in a motive intuitive, potentially self-damaging move. It has also been cutting the exports and effectively reducing the market share of other suppliers. Meanwhile, Russia has not yet reached 1
Brent is currently trading over $ 67 a barrel, with West Texas Intermediate at $ 59.94 a barrel at the time of writing, both trading slightly higher. However, they were both higher than they were in the week of March 19, when Kemp reported that the hedge funds bought 65 million barrels of crude oil, including 50 million barrels of WTI and 16 million barrels of Brent.
The relationship between long and short positions on oil between funds is now five to one, which is certainly a sign of returning confidence in the oil market's ability to keep prices up. Nevertheless, it is far from the 12-to-one relationship that was recorded in September, just before the prices fell off a rock, by the way. Related: China's Crazy Scramble to Increase Domestic Oil Production
Despite the apparent unevenness of the global economy, concern remains, and economists remind us of this on a daily basis. Decline is expected for key economies such as China and India, as well as in Southeast Asia. In early March, Fitch cut its projection for the Indian economy to 6.8 percent from 7 percent, and it was a cut from a December review from 7.8 percent. Meanwhile, China cut its own economic growth forecast for this year to 6-6.5 percent from "about 6.5 percent."
Any news about forecast shots in economic growth in both countries immediately pushes oil prices and is now gently explaining the hedge fund's relative to increase their long stakes on the world's most used commodity. Even with tensions between China and the United States, the problem of economic growth in the world's second largest importer will remain an obstacle to sustained price inflation in the foreseeable future.
There is also the question of American slate, of course. While OPEC is cutting-mostly heavier grades – the US pumps more. US slate is perhaps the strongest headwind for prices right now, and any further reports of EIA production increases are bound to weigh on WTI and even Brent.
Finally, it is President Trump and his aversion to much higher oil prices. Trump has so far addressed OPEC several times via Twitter, accusing the cartel of allowing prices to rise too high. Every time this has happened, the price rally has cooled pretty quickly. We can join another OPEC tweet, since Brent at US $ 66 is slightly above Trump's apparent maximum oil price tolerance.
By Irina Slav for Oilprice.com
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