An offshore oil platform is seen against the sunset near Huntington Beach, California, on February 9, 2024.
David MacNew | getty images
Oil prices fell sharply despite the OPEC+ alliance’s announcement of extended supply cuts. Analysts and traders have faulted certain trading strategies and the demand picture for the recession.
“There is a sentiment among traders to change and reposition their sell and buy positions, and that’s how price movements actually signal,” energy consultant Abdulaziz Almoqbel told CNBC’s Dan Murphy on Wednesday. “He said. In this case, a short position refers to activity in the futures market where you profit when prices fall, while the opposite long position cashes in when prices rise over an extended period of time.
“I would say what the market is going through right now is that we are entering an oversold, technically oversold market that is driving prices down,” he said.
On Sunday, the Organization of the Petroleum Exporting Countries (OPEC+) and its allies decided to extend existing official production cuts scheduled for the end of the year and voluntary cuts of about 1.66 million barrels per day. The period was also covered. This curb will now be in effect throughout 2025.
Additionally, several OPEC+ members have expanded their voluntary production cuts by an additional 2.2 million barrels per day from the second to third quarters of 2024, with the goal of gradually returning these volumes to the market thereafter by September 2025.
“I think there are a lot of commodity trading advisors out there. [algorithms]and the options market, which is a fairly large contract market that influences recent price movements,” Almoqbel added.
“If you look at every OPEC+ meeting that has been held over the last 36 months, you will see that oil prices have been falling since every meeting.”
Despite this outlook for market tightening, oil prices fell below $80 per day. The August-expiring iced Brent contract was at $77.59 at 11:14 a.m. London time Wednesday, up 7 cents a barrel from Tuesday’s close. The front-month Nymex WTI contract was at $73.28 a barrel, up 3 cents from Tuesday’s settlement.
“Oil prices have fallen by almost USD 5/bbl since last Friday. Some blame the OPEC+ meeting for the decline, but we believe other factors, such as the options market, have played a role,” UBS strategist Giovanni Staunovo said on Tuesday. Please note to customers.
“Prices are likely to be volatile in the short term. We believe we need to reopen inventory reserves to push oil prices higher.”
Within the oil markets, options are often used as a hedging mechanism to protect against price fluctuations.
Protective “put” and “call” contracts, a type of financial derivative, can set downward and upward limits on how much the price can change before the position is closed. Futures hedging can also be applied to protect the value of crude oil production or cargoes traded on physical markets.
The OPEC+ weekend production strategy decision has so far failed to boost prices, given that voluntary cutting countries had earlier announced plans to resume supply of 2.2 million barrels per day after the end of the third quarter. The meeting delivered a “bearish surprise” to the market and increased downside risks to Goldman Sachs’ forecast for iced Brent reaching a range of $75 to $90 a barrel, Dan Struiben, head of oil research at the investment bank, told clients. said. On the note.
Also looming large is the uncertain outlook for demand that has pitted the OPEC secretariat and the Paris-based IEA against each other. OPEC’s latest monthly oil market report for May forecast oil demand to increase by 2.25 million barrels per day this year, while the IEA expects demand to increase by just 1.06 million barrels per day. Demand typically rises in the summer due to seasonal increases in driving and increased gasoline consumption due to maintenance shutdowns at refineries in China, the world’s largest importer of crude oil.
But three oil traders, who could only speak anonymously because of confidentiality agreements, told CNBC that demand for crude is low in Asia, with one adding that some of the coming demand increase has already been “borrowed.” Volumes may have been carried over.
“If you look at recent price movements, you get the impression that we are in an oversupplied market. However, when you look at supply constraints and the dynamics of global energy supply, this market is definitely not oversupplied,” Almoqbel said. “Therefore, the focus is on the supply situation.” “Whether you’re focusing on demand or demand situations depends on what you actually want to look at.”
