Oct 4, 2022
VOT Research Desk
Key Insights and Analysis
WTI crude and Brent crude oil prices benefit from speculative OPEC+ production cuts. Global rate hikes this week (RBA & RBNZ) will pressurize demand, and COT data indicates that speculators are becoming increasingly bearish on oil prices.
Due to the implications of a potential decrease in global production levels and a weaker US Dollar, crude oil prices are continuing their overnight gains. On Monday, prices for West Texas Intermediate (WTI) reached their highest level since September 22 with a 5.21 percent increase. Although Brent crude prices increased by around 4%, relative to WTI, the global benchmark has not made as much progress.
When the Organization of the Petroleum Exporting Countries (OPEC) and its allies, referred to as OPEC+, meet in Vienna this week, a possible reduction in production may be announced. There is a lot of speculation, with estimates of a cut in production ranging from 500,000 to 1,000,000 barrels per day. According to reliable sources, Moscow wants a cut closer to the top of that range, according to Reuters. Realistically, a cut of 500k barrels seems more likely because the cartel may want to see how the market reacts before making a smaller cut and because Russia’s political interests are probably less important than those of the other members.
As markets began to price in recession fears based on rising global interest rates, oil prices fell in June, July, August, and September. This week, the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) are expected to make rate announcements, with both likely to raise interest rates. In the meantime, major US stock indexes hit fresh 2022 lows just last week as the Federal Reserve has increased its hawkish stance over the past few weeks.
For the week ending September 28, the most recent Commitments of Traders report (COT) from the CFTC shows that non-commercial WTI traders reduced their long exposure by 8,655 and increased their short exposure by 5,143.That brought the number of net speculative longs down to +226,080, which is still close to the lowest level since 2015.This year, both longs and shorts have decreased their wagers. However, the trend of decreasing long positioning began prior to the reversal of short positions, which increased in May, approximately a month before prices reached their highest point in June at 123.66.
The likelihood of a short-covering rally should also be taken into account, and those trends will be important to keep an eye on in the coming weeks. As is customary, forthcoming inventory data from the United States is also under consideration. Stock data for the week ending September 30 will be released by the Energy Information Administration (EIA) and the American Petroleum Institute (API).The EIA report is expected to show a build of nearly 2 million barrels, but stocks of gasoline and distillate are expected to decrease.
