Oil prices plummeted by over 4% today, hitting a three-year low as market sentiment weakened ahead of the U.S. Presidential debate between Donald Trump and Kamala Harris. Traders have reacted strongly to negative developments, ignoring the otherwise stable fundamentals. Hedge funds and money managers are showing unprecedented bearishness, with speculative positions in crude oil at historically low levels. As of September 3, net long positions in Brent and WTI were just 2.3% of open interest, the lowest since early 2011.
Recent net selling has reached 311.2 million barrels over the past eight weeks. Standard Chartered’s crude oil positioning index has fallen to -100.0, a level last seen in December 2023 before a notable price rally. However, analysts caution that there might still be room for further declines as the index reached -100.0 multiple times in Q2 2023 before a price low. Currently, ICE Brent’s positioning is -93.9, while NYMEX WTI’s is -51.8, with WTI still showing relatively higher speculative long positions.
Standard Chartered attributes the extreme bearish positioning to inaccurate expectations of an impending crude oil surplus and fears of severe economic disruptions. Despite some negative trends in gasoline inventories and implied demand, EIA data does not suggest an imminent economic collapse. The most significant recent development is OPEC+’s decision to delay a planned production increase of 180,000 barrels per day in October. Despite this, oil prices continue to fall, driven by a poor outlook for oil balances and revised demand growth forecasts from OPEC.
Moreover, Libyan oil exports remain halted due to ongoing conflicts, though some production has been redirected for local use. Despite a significant reduction in Libyan output, prices for Azeri, African, and U.S. crude grades have risen. The ongoing disruption has also led to increased imports of WTI Midland into Europe. Additionally, tropical storm Francine has caused production shutdowns in the Gulf of Mexico, with notable reductions in crude oil and natural gas output.
As market conditions remain volatile, traders and analysts will be closely watching upcoming developments for potential shifts in the oil market.
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