Oil prices fall as traders turn bearish

Rising global oil supply and weaker-than-expected demand have made traders increasingly bearish on oil prices.

Hedge funds and other money managers accelerated their selling in the most traded oil futures in the last reporting week to Sept. 3. Portfolio managers cut their overall net long position – the difference between bull and bear bets – to the lowest level since stock markets began compiling such data in 2011.

The positioning in crude oil was already tilted to the bearish side in the previous reporting week to August 27, as traders more than halved their bullish bets since early July.

The week to September 3 saw further selling and a market disaster as oil prices fell to their lowest level this year. The prospect of a rebound in Libyan oil exports – after a halt amid a political dispute – and continued weak Chinese data and a weaker outlook for its economic growth weighed on market sentiment.

As a result, the combined net long position on the two crude benchmarks, Brent and WTI, was reduced by 99,889 lots to just 139,242 lots in the week to September 3, according to exchange data cited by Bloomberg. This was the lowest bullish position in data from ICE Futures Europe and the CFTC since ICE began collecting such data in March 2011.

Net long position in US benchmark WTI Crude was reduced by 62,000 lots to 125,000 lots. Net long in Brent Crude it almost halved to around 42,000 lots in the week to September 3.

“Including the three fuel products, the net is now down to 121,000 contracts, the lowest energy exposure on record since 2011, when ICE began collecting data,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said.

Fears of slowing economies in China and the United States continued to boost speculators and hedge funds, as did concerns about oversupply with an increase in OPEC+ production.

After the end of the reporting week until September 3, the OPEC+ group decided to be late the planned increase in production by two months from October to December.

However, this did little to reverse bear market sentiment and prices have fallen after the announcement late last week.

Demand concerns overrode the alliance’s decision to delay adding 180,000 barrels per day (bpd) to supply.

Last week, WTI Crude posted its worst weekly performance since October 2023, down 8% for the week. On Friday, WTI and Brent settled at their lowest levels since June 2023 — at $67.67 and $71.06 a barrel, respectively.

Early Monday, prices recovered 1 percent from last week’s selloff, partly due to forecasts that a weather system in the Gulf of Mexico could become a hurricane.

However, Monday’s early rally is overshadowed by concerns over the US and Chinese economies.

Weak US jobs data on Friday with a smaller number of jobs created than expected, rekindled recession fears. However, the data paves the way for the Fed to cut interest rates next week.

A rate cut could boost oil demand if economic growth picks up.

However, economic data from China continues to drag down commodity prices.

Major Wall Street banks, including Goldman Sachs, JP Morgan, Citi and Bank of America, have already cut their predictions of China’s GDP growth below the official Chinese target of “around 5%” economic growth this year.

BofA was one of the latest to cut its estimate to 4.8% from 5%, saying earlier this month, “we view both fiscal and monetary policy stances to be less accommodative than desired and insufficient to revive domestic demand growth.”

Improving Chinese demand would be vital to turn around the current exceptionally bearish sentiment on oil, as would a rebound in the US economy after expected Fed tapering.

By Tsvetana Paraskova for Oilprice.com

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