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Oil market: is it time for correction? Speculative long positions and OPEC output reached all time highs.

We see opportunities to profit from the short position in Brent crude oil futures with entry @ $52.5-55 and a target of $44-46. Pros are the following:

  • Speculative long positions in crude oil futures are at the new all time highs.

  • There is still a supply glut on the world oil market (OPEC, Russia pump a lot), although global demand for oil is growing (China, USA), at least for now.

  • The agreement to cut / freeze oil output between OPEC and Russia can’t be met, at least to the degree sufficient to balance the market and to balance it quickly.

  • The US oil inventories reduction is seasonal and masks oil stocks growth in China. In November US oil inventories will begin to rose again and can grow till April-May 2017 if the coming winter won’t be too cold.

  • 40% jump in US oil rigs count in less than half a year and oil producers’ hedge book extension beyond 2 bn bbl both point to the high probability of oil production growth outside OPEC (mainly in the USA).

  • Historical examples evidence that it is unusual to have V-shape recovery in the oil market when it was oversupplied. In the past it took years of low oil prices to balance the market. So at best we should expect oil prices stabilization in a wide range of $40-60 per bbl.

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Oil, market, correction

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Oil Market Report - May 2020

An unprecedented global Crude oil futures prices extended sharp declines in April 2020 amid a strong contraction in the global economy and oil demand due to the impact of the COVID-19 pandemic. In April 2020, the ICE Brent contract plunged by 21.0% mom to average $26.63 / bbl, while the NYMEX WTI contract lost 45.2% of its value to average $16.70 / bbl amid bearish market sentiment. Crude oil spot prices recorded a sharp monthly drop on a continuing growing oil surplus in the spot market and accumulating unsold cargoes, as refiners heavily cut runs due to plunging oil demand and global oil stocks rose both onshore and offshore. 

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Arbat Capital: Banking Sector Report - April 2020

US banks increased significantly in April after very weak performance in the first 3 months of 2020. However, the broad market was only slightly outperformed after 3 months in a row of lagging dynamics. 

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Oil Market Report - April 2020

An unprecedented global oil demand shock and a massive sell-off in global oil markets accompanied by the breakdown of the OPEC+ agreement and the start of a new oil war between Saudi Arabia and Russia pushed crude oil futures prices to more than 18-year lows in late March 2020, while economic stimulus plans from governments and central banks, as well as some recovery in equity markets, failed to calm investor worries and to limit the oil price decline. 

Arbat Capital