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OMR: Waning confidence

By:International Energy Agency

Oil investors are going through a period of waning confidence with prices recently returning to levels not seen since early November. Brent prices have closed below $50/bbl each day since early June and few investors expect a recovery anytime soon. Money managers slashed net long positions in Brent and WTI crude futures by more than 200 mb between end-May and end-June, to 312 mb. This was the lowest net long position recorded since January 2016 and June was the fourth straight month of falls in net long positions since a record bullish position was achieved in February in the euphoria following the output agreements. The widespread interpretation of this is that investors believe, perhaps impatiently, that oil market re-balancing is taking too long with some calling for additional action by producers to speed up the process. 

Each month something seems to come along to raise doubts about the pace of the re-balancing process. This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement. In the past few months, Libya and Nigeria have seen their combined output increase by more than 700 kb/d. For fellow OPEC members, who agreed to reduce production by 1.2 mb/d, to see their cut effectively diluted by nearly two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards.



Last Update: 17/07/2017

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