OPTIMISM ON GLOBAL OIL PRICE WANES
Despite a good week, Brent stays about 6pc down from May peak
OVER the past four months, investor optimism that global crude prices will rise has slumped by almost half. Hedge funds’ net-bullish position on Brent crude, a measure of how positive money managers are that prices will gain, has plunged 49 per cent since early April as trade wars cloud the picture for oil consumption.
Despite a good week for the benchmark amid strikes at North Sea fields and declines in United States stockpiles, Brent remains about six per cent down from this year’s peak in May.
“When you start to look at the different economies across the globe — Europe, Asia, the emerging markets — are definitely starting to hit some headwinds,” said Mark Watkins, who helps oversee US$151 billion (RM620.61 billion) at US Bank Wealth Management.
Investors “are potentially getting a little bit more concerned about the rest of the year, and probably going into next year, that demand might be a little bit softer than previously had been”.
The exchange of tariffs between the US and China is one factor that threatens to weaken global economic growth and hurt energy demand. Technical indicators also pointed to a potential decline in prices: During the period covered by the report, Brent’s 50-day moving average dropped below its 100-day one, an invitation to sell.
Hedge funds’ net-long position — the difference between bets on higher prices and wagers on a drop — in Brent was reduced to 324,431 contracts, ICE Futures Europe data showed for the week ended August 21. That compared with a high for the year of 632,454 in the week ended April 10. Longs fell to the lowest in more than two years.
Saudi Arabia has formally put the initial public offering (IPO) of its state oil company on hold while Aramco focuses on buying a strategic stake in local petrochemical group Sabic for as much as US$70 billion.
While the Sabic deal would delay the IPO, it didn’t mean it’s cancelled, said people familiar with the matter.
“It seems like worst case for Saudi Arabia: It’s off the table. Best case: It’s delayed even further,” said Brian Kessens, who helps manage US$16 billion in energy assets at Tortoise.
“Some people thought that if the Aramco IPO was going to go forward, that at least that would offer longer term support for oil.”
The net-long position in West Texas Intermediate crude, the American benchmark, slid four per cent to 327,742 futures and options, the lowest level in two months, according to the US Commodity Futures Trading Commission (CFTC).
Longs and shorts both rose. Money managers cut their netlong positions on benchmark US petrol and diesel both by about 11 per cent, according to the CFTC.