The Oil Futures Market - July 2017

Source: OPEC 8/8/2017, Location: Europe

Oil futures in New York and London tumbled in June to become bearish, with ICE Brent settling below the $50/b mark for the first time this year on concerns that rising global supply will counter output adjustments from OPEC and non-OPEC participating producers. US crude inventories remained more than 100 mb above the five-year seasonal average. Oil futures have also dropped over the month due to concerns that persistent US production growth will translate into crude inventory builds, should seasonal refinery demand back off. Hedge funds have embarked on a new cycle of short-selling in Brent and WTI, which has added to downward pressure on prices. The wider oil complex faced a steep price decline over the month. This started early in the month with an EIA report showing a surprisingly large weekly stock build that helped create a bearish impression. At the same time, US gasoline demand took a turn to the downside just as the summer driving season started. A rebound in Libyan and Nigerian production added pressure to an already amply supplied Atlantic Basin due to a massive increase in US shale oil production, while demand from Asia was weaker on account of upcoming refinery maintenance and unfavourable arbitrage economics. The prospect of increased supply also put some pressure on prices. Nigerian Forcados production ramped up quickly after it resumed in May, increasing to 250 tb/d, creating an overhang as supply surpassed demand. Floating storage also increased amid continuing oversupply in the crude market. Volumes of oil stored at sea are increasing not only around Singapore, but also in the North Sea, with ship-tracking sources indicating a build-up of floating barrels of around 7 mb to 9 mb. Oil futures contracts lost around 7% for the quarter on both sides of the Atlantic.

Towards the end of the month, oil futures recovered slightly amid tightening supply and indications that OPEC and non-OPEC output adjustments adjustment was helping to rebalance the market. Some support for crude prices came from a tighter North Sea market. Demand from Chinese independent refiners for North Sea crudes firmed while floating stocks fell to around 6 mb from 9 mb in this region at the start of the month. August loading of North Sea Light will fall to a three-year low owing to field maintenance, and shipments of other North Sea grades will also decline.

ICE Brent ended June $3.85, or 7.5% lower, to stand at $47.55/b on a monthly average basis, while NYMEX WTI slipped $3.34, or 6.9%, to $45.20/b. Y-t-d, ICE Brent is $11.47, or 27.8% higher at $52.68/b, while NYMEX WTI increased by $10.17, or 25.6%, to $49.95/b.

Crude oil futures prices improved in the second week of July. On 11 July, ICE Brent stood at $47.52/b and NYMEX WTI at $45.04/b.

Bearish, or short, bets on crude oil prices have exploded further in June. In the US crude market, the short position held by money managers doubled in just two months to the equivalent of nearly 180 mb, while in the Brent market investors are sitting on a record short position of near 177 mb.

Fund managers have added 80 mb of extra short positions in WTI and 65 mb in Brent since 30 May, according to data from regulators and exchanges. Nevertheless, hedge fund long positions still outnumbered short positions by a ratio of 2.11.9 to 1, but this was one of the lowest ratios recorded in recent years. The risk of a short-covering rally when fund managers attempt to lock in profit has increased significantly. And with relatively few long positions left to close, the downside threat from further liquidation has been reduced. All in all, money managers cut their net combined futures and options positions in US crude by 72,497 contracts or 35% to 133,606 lots in the four weeks to 27 June, the lowest level since late September, data from the US Commodity Futures Trading Commission (CFTC) showed. Similarly, speculators lowered net long positions by 149,676 contracts, or 43%, to 200,204 lots in ICE Brent futures and options. The total futures and options open interest volume in the two exchanges was down 0.5% at 5.66 million contracts, and the net length positions share decreased to 5.9% from 9.8%.

The daily average traded volume for NYMEX WTI contracts surged further by 73,267 lots, or 5.9%, to 1,324,482 contracts, while that of ICE Brent was 43,709 contracts higher, up by 5.9% at 1,131,272 lots. Daily aggregate traded volume for both crude oil futures markets increased by 116,976 contracts to 2.46 million futures contracts, or near 2.5 bb/d of crude oil. Total traded volume NYMEX WTI and ICE Bent futures in June were significantly higher again at 29.14 and 24.89 million contracts, respectively.

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Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

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