Recent weeks have witnessed a significant shift in the oil market, with traders adopting a bearish stance. This change in sentiment, marked by a reduction in bullish bets, has led to a sell-off, with speculators concerned about the global economy and oil demand. The bullish mood prevalent in September, driven by OPEC+ supply cuts, has faded. As a result, bullish positioning in Brent and West Texas Intermediate (WTI) crude futures contracts hit a four-month low last week.
OPEC, led by Saudi Arabia, maintains that demand remains strong, suggesting that the recent drop in Brent prices from US$90 to US$80 a barrel is an overreaction to demand concerns. In response to this bearish trend, Saudi Arabia may consider extending its additional one million barrels per day (bpd) production cut into 2024. This decision is pending, with current cuts from Saudi Arabia and Russia's pledged 300,000 bpd export reduction set to expire at the end of 2023.
WTI Jan-crude futures are now down 15% in one month.Headlines: crude falls on rising US inventories, China worries...
Oil markets tend to overshoot/undershoot - prepare for a big turnaround rally in crude. pic.twitter.com/z5h2N7o0a2
— OilPrice.com (@OilandEnergy) November 16, 2023
The possibility of an extension in production cuts is further fuelled by the seasonal dip in oil demand in early 2024. Traders have been net sellers in major petroleum futures contracts for five of the past six weeks, a trend highlighted by market analyst John Kemp. The combined net long position in WTI and Brent has dropped by 44% since September, as per Ole Hansen, Head of Commodity Strategy at Saxo Bank.
OPEC and Saudi Arabia continue to assert the strength of the oil market, even as traders lean bearish. Haitham Al Ghais, OPEC Secretary General, expressed optimism about global oil demand, ahead of a crucial OPEC+ meeting later in November. OPEC's recent report also counters the negative sentiment, highlighting robust Chinese crude imports.
Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, and the International Energy Agency (IEA) have also emphasized the ongoing robustness of oil demand. ING strategists Warren Patterson and Ewa Manthey acknowledge the recent price drops but maintain that fundamentals remain supportive, suggesting a potential market deficit for the rest of the year.