Monday, Jun 26, 2017

Dubai: Bears have taken over the oil market, and they don’t look likely to be leaving soon.

On Monday, oil prices were relatively flat after both WTI crude and Brent crude descended into a bear market last week, with analysts still flagging concerns about higher production levels.

Hussain Sayed, chief market strategist at FXTM, pointed out that oil inventories are not shrinking fast enough, a challenge that is exacerbated by a slowdown in demand even from China. Analysts had been pinning hopes specifically on China and India recording strong demand.

“I think sentiment is still negative. Although we entered into a bear market, when I look at the options market, I can still see so many short positions. This worries me. We’re seeing this correlation between the rig count in the US and the price of oil. Rig count is still increasing relentlessly although prices are close to $40 [Dh147) ,” Sayed told Gulf News.

Oil entered bear market territory last Wednesday, with prices down nearly 21 per cent year-to-date as concerns about oversupply continued to haunt investors. Oil prices have given back all their gains since oil-producing countries reached a deal in November to cut production levels, according to Bloomberg data.

FXTM’s Sayed said he, however, expected to see prices at around $50-$55 a barrel by the end of this year. Brent prices on Monday were trading at nearly $45.5 while WTI crude was trading at around $42.9.

“I think we are on the way to a rebalancing, but it’s going to be slower than expected. By the end of the year, we probably won’t have a supply/demand balance, but by mid-2018, I think we could see a rebalancing,” he said.

In a note on Monday, Saxo Bank stressed the abundance of investors shorting oil prices — a signal of further downside in prices — saying that long positions in WTI crude fell by 31 per cent as short sellers went on the attack.

“Rising supply, especially from Libya and Nigeria combined with rising US inventories further reduced the market’s belief that Opec would successfully manage to balance the market … The risk is once again beginning to be skewed to the upside. Much still depends on the weekly US inventory report, which for the past three Wednesdays triggered major sell-offs,” said Ole Hansen, head of commodity strategy at Saxo Bank.

By Sarah Diaa Staff Reporter

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