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Page added on June 27, 2017

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Has the oil market reached ‘peak bear’?

Has the oil market reached ‘peak bear’? thumbnail

Investor bets against the oil price are piling up at breakneck speed, the market is still buckling under the weight of excess supply for a third year in a row, but has bearish sentiment got out of hand?

The price of a barrel of oil has dropped nearly 20 percent between January and June and is closing in on its largest slide in the first half of any year in the last 20 years.

Geopolitical tensions in the Middle East, a near-2 million barrel per day cut in output by the world’s largest producers and the seasonally strong summer demand period in full swing have not been enough to rescue the price from its lowest level in seven months.

A bear market is theoretically defined by an asset price falling by 20 percent or more from a peak, a box the oil price has ticked given the drop of nearly 21 percent since the 2017 high of $58.37 struck in early January.

But nothing can fall forever and the old markets adage of “what goes down must, at some point, come up” must surely prove correct eventually.

“We’re at a peak of bearish headlines and that usually a sign that the bottom is near,” SEB commodities strategist Bjarne Schieldrop said.

Google Trends shows that queries for “oil bear market” on its Google search engine have rocketed to their highest since mid-January 2016, exactly the point at which the Brent price hit a near-13 year low of $27 a barrel before rallying.

Click reut.rs/2sHXvrB for Chart of Google searches for “oil bear market”

In the meantime, bearish, or short, bets on crude oil have exploded.

In the U.S. crude market, the short position held by money managers has doubled in just two months to the equivalent of nearly 190 million barrels, while in the Brent market, investors are sitting on a record short position of 169 million barrels.

Click reut.rs/2tcPvk2 for graphic on U.S. crude managed money short position vs weekly rig count

The Organization of the Petroleum Exporting Countries agreed in May with 11 rival producers, including Russia and Qatar, to maintain a production cut of 1.8 million bpd right into the first quarter of next year.

But there have been plenty of reasons for oil traders and investors to be gloomy.

A relentless rise in U.S. drilling activity, coupled with resurgent production from both Libya and Nigeria, OPEC members that have been excluded from the supply deal on the grounds that their output was cut by forces beyond their control, have scuppered OPEC’s efforts to force a large global overhang of crude and refined products to drain.

While the prospect of a barrage of money betting on a drop in the price may seem ominous, any open short position can potentially be closed, and bring with it a rise in the price, unlike an open long position which can trigger a drop if closed.

“When looking at (futures) data, one would certainly get the impression that care is warranted as positioning has become relatively one-sided,” JBC Energy said in a note.

Click reut.rs/2sIh835 for graphic on ICE Brent crude managed money short positions

 

reuters



3 Comments on "Has the oil market reached ‘peak bear’?"

  1. Sissyfuss on Tue, 27th Jun 2017 9:38 am 

    “What goes down must come up.” What’s going up is debt, Ponzinomics, and political incompetence. Not abundant resources, pristine environments, or human wisdom. The new civil war has started and it is between the natural world and humanity. After a long and bloody battle, Nature will prevail. She always bats last.

  2. bobinget on Tue, 27th Jun 2017 2:35 pm 

    http://www.livecharts.co.uk/MarketCharts/crude.php

    The Saudis have little choice. Stop shipping storage crude to the US or run out of foreign currency. (exchange)

  3. Theedrich on Wed, 28th Jun 2017 3:57 am 

    Islam is a gangster religion.  This is the main problem with the mideastern oil situation.  The Muslims there not only twist the entire Western world around their little finger with their “religious” fanaticism, but war amongst themselves, as they have for 1400 years.  Islam Dismantled:  The Mental Illness of Prophet Muhammad, by Sujit Das, shows clearly that the study of Islamic origins and history amounts to the investigation of a toilet of terror — to a close inspection of a combination of an insane asylum and a torture chamber.  Like the Sicilian Mafia, Islam maintains itself through brainwashing, terror and murder.  This analytical exposé by Sujit Das, for whom English is a second language, reveals this reality.  It shows just how, from its origins with the psychopathic but exceedingly cunning Mohammed, this religious terror system has perverted a billion people into a sick state of inverted narcissism, a masochistic dependence on a mythical demon called Allah, a former moon god of the pre-Mohammedan Arabs.

    Ancient forms of Quranic texts (the “holy scriptures” of Islam) found in a Sana’a, Yemeni mosque in 1972 (pp. 156-159) have revealed hat the original “Quran” was even more disorganized and idiotic than the current jumble of chaotic Muslim scribblings.  (Yemeni authorities prohibited all further research into these texts soon after German researchers, after having taken 35,000 microfilm photographs of the texts back to Germany, uncovered this.)

    As Das explains (p. 273), “Muhammad was a criminal, a liar, a pedophile, a shameless womanizer, a mass-murderer and a ruthless tyrant.”  The illiterate Mohammed constantly invented messages from his invented god to justify political murders, assassinations, raid booty, pedophilia, abundant sex and other forms of criminal insanity.

    The end result:  the whole of Islamic society is a fetid, decaying mass which seeks, like Communism, to extend its putrefaction over the entire earth through lies and terror.

    Illiteracy, blind credulity and stupidity are the foundation of Mohammedanism, and Muslim rulers want to keep it that way.  Their aim is to spread this culture of bloodthirsty, crazed ignorance over the entire globe.  This book should be read by every self-deluding and/or lying politician in the Western world.  Until our oil-bribed politicians do this, we will continue to be driven mad by an insane sociopathy from the seventh century.

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