The growing optimism in the oil market in a long-term perspective.
Oil market participants now expect OPEC's cuts and U.S. sanctions on Venezuela and Iran continue to tighten through the end of 2019.
US $ 0.90 a barrel, compared to a contango of US $ 0.70 at the end of last year, Reuters market analyst John Kemp notes ,
Backwardation is the market situation in the front-month prices are trading at a premium to the future-a sign of a tighter or undersupplied market. In the opposite structure-contango-front-month prices are lower than prices out in the future months-pointing to a crude oil oversupply and making storing oil for future sales profitable.
So the shift to backwardation-which was one of OPEC's statedly stated goals when it started to deliver oil in 2017 in tandem with Russia-signals that many oil market participants expect a tighter oil market in the second half of 2019, and as a result , higher oil prices.
Brent's near-month futures contracts, Kemp argues. Portfolio managers usually focus on their accounts. So the return of bullish speculators so contributed to the shift to backwarding for the contracts further out in time, those for later in 2019.
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Over the past two weeks, the sentiment on the oil market has been increasingly bullish. First, Saudi Arabia signaled it would cut in March 500,000 bpd more than its share in the OPEC deal and would further slash to below 7 million bpd. Then, signs started to emerge that the U.S. and China could reach some sort of a trade deal, thus potentially reducing the much-feared global economic slowdown that could dent oil demand. Next, there are the U.S. sanctions on Iran and Venezuela are restricting supply, while there is uncertainty about how much additional crude barrels will be extracted from those two OPEC members as Nicolas Maduro is digging into power and there is no certainty in the US. would approach the waivers on Iran's oil customers once they expire in early May 2019.
So, hedge fund and other money managers boost their long positions in Brent by 10 percent in the week to February 12, the latest available data, and this is the highest rise in bullish bets since late August 2018, according to exchange data compiled by Bloomberg , Bets that Brent Crude prices will drop by 5.5 percent in the most recent reporting week. This is the first clear signal this year. Portfolio management are turning bullish on oil prices. 20120, rather than a renewed. The long-term position in Brent-the difference between the two is that it will be the end of the year bullishness that oil prices would be rallying.
In the week to February 5, portfolio managers added more long positions on Brent Crude, but short positions so rose for the first time this year. Undecided where oil prices will be next to.
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Brent contracts accelerating the backwardation-the perception that the oil market wants to get better in the second half of the year.
Saudi Energy Minister Khalid al-Falih said this week he hoped the market would return to balance by April, reiterating that OPEC's leader's resolve to do whatever it takes is "unquestionable."
Saudi Arabia and OPEC's cuts, sanctions on Venezuela and Iran, and hopes that a US-China trade has been averted are all boosting the bullish sentiment on the oil market. Yet, surpassing U.S. oil production and a return of fears of a global economic and oil demand growth.
By Tsvetana Paraskova for Oilprice.com
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