The increasing optimism in the oil market over the past few weeks has resulted in concrete evidence that traders expect an ever tighter raw market ahead this year.
Oil market participants now expect OPEC's cuts and US sanctions against Venezuela and Iran to continue to tighten the market through the end of 2019.
The proof is that the Brent Crude calendar scattered in the second half of this year has returned to so high as US $ 0.90 per barrel, compared to an account US $ 0.70 At the end of last year, Reuters noted market analyst John Kemp.
Reversal is the market situation where prime month prices are at a premium compared to prices further out in the future ̵
So the shift to return – which was one of OPEC's officially set goals when it began to limit oil supply in 2017 in conjunction with Russia – signals that many oil market partners expect a tighter oil market in the second half of 2019, and as a result higher oil prices.
The last flip to return in Brent Crude's spread spread was also aided by the return of bullish hedge fund positioning in Brent's near future contracts, Kemp argues. Portfolio managers usually focus their bets on contracts more closely in time due to higher liquidity. So the return of bullish speculators also contributed to shifting to the return of contracts further out in time, those for later in 2019.
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In the past two weeks, the mood in the oil market has grown steadily. First, Saudi Arabia signaled that it would cut 500,000 bpd in March more than its share of the OPEC cuts, and will further reduce exports to below $ 7 million. Then, the signs began to arise that the United States and China could come to a form of trade agreement, thus potentially averting the much-feared global economic downturn that could force oil consumption. Then there are US sanctions against Iran and Venezuela that restrict supply, while there is uncertainty about how much extra barrels will be choked by the two OPEC members that Nicolas Maduro digs in to cling to power, and since there are no security how the US would approach deviations from Iran's oil customers when they expire in early May 2019.
So hedge funds and other fund managers secured their long positions in Brent by 10 percent a week until February 12, the latest available data, and this was the highest increase in bullish bets since late August 2018, according to exchange data prepared by Bloomberg. Stakes that burned Crude prices will fall fell by 5.5 percent in the last reporting week. This was the first clear signal this year that portfolio managers are bullish on oil prices. The net long position in Brent – the difference between games that prices will rise and bets on a drop – has also increased in the previous weeks, but mostly due to the closure of the many shorts from the end of 2018, instead of a renewed bullishness that oil prices should rally.
During the week of February 5, portfolio managers made several long positions at Brent Crude, but short positions also rose for the first time this year. Although the speculative positioning of the week resulted in a slight increase in the overall net long position, the increase in short positions showed that hedge funds were much more uncertain, with oil prices going next.
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During the week of February 12, the general oil market temperature of the hedge fund moved from undecided to bullish, with speculative short-term purchases in Brent contracts The reason why the oil market will be tighter in the second half of the year.
Saudi Energy Minister Khalid al-Falih said in this week that he hoped the market would return to balance in April, pointing out that OPEC leaders released to do everything needed to balance supply and demand is "undoubtedly."
Saudi Arabia and OPEC's cuts, sanctions against Venezuela and Iran, and hoping that a trade war between the United States and China will be averted, are all bostosting the bullish stance on the oil market. Nevertheless, increasing oil production in the US and a return of fear of global decline in economic and oil demand growth may once again increase market sentiment.
By Tsvetana Paraskova for Oilprice.com
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