Home — Research and News — Oil market: is it time for correction? Speculative long positions and OPEC output reached all time highs.
Alexander Orlov CFA, Managing Director
Strategy

Oil market: is it time for correction? Speculative long positions and OPEC output reached all time highs.

We see opportunities to profit from the short position in Brent crude oil futures with entry @ $52.5-55 and a target of $44-46. Pros are the following:

  • Speculative long positions in crude oil futures are at the new all time highs.

  • There is still a supply glut on the world oil market (OPEC, Russia pump a lot), although global demand for oil is growing (China, USA), at least for now.

  • The agreement to cut / freeze oil output between OPEC and Russia can’t be met, at least to the degree sufficient to balance the market and to balance it quickly.

  • The US oil inventories reduction is seasonal and masks oil stocks growth in China. In November US oil inventories will begin to rose again and can grow till April-May 2017 if the coming winter won’t be too cold.

  • 40% jump in US oil rigs count in less than half a year and oil producers’ hedge book extension beyond 2 bn bbl both point to the high probability of oil production growth outside OPEC (mainly in the USA).

  • Historical examples evidence that it is unusual to have V-shape recovery in the oil market when it was oversupplied. In the past it took years of low oil prices to balance the market. So at best we should expect oil prices stabilization in a wide range of $40-60 per bbl.

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01 November 2016, Arbat Capital

Oil, market, correction

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