- Crude prices slipping lower in wake of Opec/Russia deal
- Brent, WTI speculative long position close to one billion barrels
- WTI crude prices could be headed to $53/barrel
Oil prices are sliding lower after a brief rally surrounding the Opec/Russia
deal extension. Photo: Shutterstock
By Ole Hansen
Buying fatigue has started to emerge in crude oil following last week's very successful delivery by Opec and Russia of a nine-month production cut extension. This is a natural consequence of the fact that the decision was already being priced in ahead of last Thursday and of how far crude oil had rallied in the weeks leading up to the meeting.
Considering that the speculative long in WTI and Brent crude of close to 1 billion barrels and that this is the time of year when traders are more focused on bringing down exposure than on adding, we think oil markets could see some potential fireworks over the coming weeks.
In the week to November 28, the combined net-long in Brent and WTI crude oil hit a fresh record of 963,000 lots or 963 million barrels. The latest increase was driven by short-sellers exiting the market ahead of the Opec meeting.
Today's weakness has been driven by the weekly stocks update from the American Petroleum Institute after it reported a major build in gasoline and distillate stocks last week. The combined rise of 13.5 million barrels dwarfed the bigger-than-expected 5.48 million barrel reduction in crude oil stocks.
Rising stocks carry the risk of reducing refinery margins – the gasoline crack hit a nine-month low yesterday – and weighing on demand for crude oil.
Following the Opec / Non-Opec production cut extension the market's focus will increasingly be turning towards the US to see whether shale oil producers will be able to increase production in line with expectations.
Oil traders may also look towards industrial metals where the Bloomberg Industrial Metal index, led by copper, has fallen to a four-month low in response to concerns about Chinese growth prospects heading into 2018.
Apart from inventories, refinery demand, and production, today's EIA report will also provide an update on US trade with the rest of the world in crude oil and products. Net imports of crude oil and products slumped to a record low last week due to rising exports of products and lower oil imports driven by disrupted flows from Canada.
Having broken the steep uptrend from October when supplies from Northern Iraq were disrupted, WTI crude oil has now gone looking for support. The overhang of speculative longs has raised the risk of a bigger correction than what otherwise could be expected.
We see the risk of an initial correction to $55/b with a potential pick-up in long liquidation sending it even lower towards $53/b.
Source: Saxo Bank
— Edited by Michael McKenna
Ole Hansen is head of commodity strategy at Saxo Bank