Oil futures on both sides of the Atlantic recovered, m-o-m, but their upward potential is still limited by a resurgence of shale and other oil output. Pressure continues to come from a bearish unbalance in oil market conditions due to increasing US crude oil supplies and lower-than-expected inventory draws. Prices are continuing to come under pressure from expectations of higher supply and a slower-than-expected market rebalancing. Moreover, this pressure has kept oil prices range bound since the beginning of the year. Nevertheless, oil futures found support from OPEC and non-OPEC members’ high production conformity this month, amid expectations that the output adjustment could be extended beyond the middle of the year. Further reports of a potential drop in some OPEC and non-OPEC crude exports over May, temporary production turbulence mainly in Libya, Nigeria and the North Sea, and geopolitical tensions in the Middle East and Asia Pacific provided support. Bullish managed money activity earlier in the month facilitated the lift in oil prices. This was demonstrated by an increase in net long managed money positions during this period.
ICE Brent ended $1.28 higher in April, an increase of 2.4%, to stand at $53.82/b on a monthly average basis. NYMEX WTI increased by $1.45 or 2.9% to stand at $51.12/b. Y-t-d, ICE Brent was $17.16 or 46.1% higher at $54.40/b, while NYMEX WTI surged $16.08 or 45.2% higher to $51.63/b.
Crude oil futures prices improved in the second week of May. On 10 May, ICE Brent stood at $50.22/b and NYMEX WTI at $47.33/b.
In the period ending 18 April, managed money activities increased bets on higher oil prices. Managed money net length in oil futures and options in NYMEX WTI surged by 78,750 contracts or 32.2% from the 28 March week level to 323,364 contracts in the week to 18 April. Similarly, in ICE Brent futures and options, managed money raised net long positions by a hefty 99,657 contracts or 30.4% to 358,433 lots. Total futures and options open interest volume in the two exchanges was unchanged at 5.86 million contracts, but the net length positions’ share increased to 86.2% from 79.1%.
In the week to 25 April, hedge funds lost faith in the prospect of an accelerated rebalancing in the oil market. Hence, they cut their combined net long positions in two main futures and options contracts linked to Brent and WTI by 137 mb to 614 mb. The reduction was one of the largest weekly falls on record, and reverses a cumulative increase of 140 mb over the previous three weeks, according to data from regulators and exchanges. Fund managers are now much less bullish about the outlook for crude oil prices than they were back at the beginning of the year. Bullish long positions outnumber bearish short positions by a ratio of 4:1, down from 7:1 at the beginning of the year and a peak of more than 10:1 in late February.
The daily average traded volume for NYMEX WTI contracts decreased 31,434 lots or 2.7% to 1,117,121 contracts, while that of ICE Brent was 29,912 contracts higher, up 3.2% at 963,538 lots. The daily aggregate traded volume for both crude oil futures markets slipped 1,522 contracts to 2.08 million futures contracts, or roughly 2.1 bb/d of crude oil. The total traded volume NYMEX WTI futures in April was significantly lower at 21.23 million contracts, down about 20%. Similarly, ICE Bent futures volumes decreased 14.7% to 18.31 million contracts.