Sentiment among energy investors has turned ‘decidedly bearish’

Investing.com — Crude oil prices held around the flat line on Monday, supported by concerns that heightened conflict in the Middle East could reduce regional supply.

By 08:30 ET, the contract was mostly flat at $74.51 a barrel, while futures (WTI) traded 0.2% higher at $70.21 a barrel.

Traders were seen placing a risk premium on oil prices as Israel continued to carry out strikes in Gaza and Lebanon, playing off concerns of an all-out war in the oil-rich region.

Hezbollah recently vowed retaliation against Israel after the country allegedly detonated several electronic devices used by the Lebanese group.

Constant fighting and threats of war have raised concerns that a wider conflict in the Middle East will disrupt supplies, tightening global markets. Crude oil prices posted a two-week rebound from near three-year lows, boosted by supply concerns in the wake of Hurricane Francine.

However, analysts at Bank of America noted that “sentiment among energy investors has turned decidedly bearish” due to plans by the Organization of the Petroleum Exporting Countries and its allies — known as OPEC+ — to eliminate gradually further voluntary production cuts. The oil group is scheduled to gradually bring back 2.2 million barrels per day from December 2024 to November 2025, although that deadline was previously pushed back by two months.

“Net speculative positioning in total oil futures and options recently fell to the lowest levels since at least 2011, suggesting investors are already more than positioned for a bearish energy price environment,” Bank of America analysts said .

Further weighing on the outlook was weak demand in major oil importer China, concerns about a possible rise in trade tensions and a “hard landing in the global economy,” BofA analysts said.

However, for all the bearish concerns, analysts said price risks were “more balanced”, citing their expectations for an acceleration in global energy consumption due to an increase in productivity fueled by artificial intelligence.

“It’s important to remember that the coming confrontation between artificial intelligence and the fight against climate change has energy at its heart,” BofA analysts said.