Baku, Azerbaijan, July 5
By Leman Zeynalova – Trend:
The price of oil will have to overcome the negative sentiment surrounding the US-China trade war dynamic - and macroeconomic headwinds more broadly, Trend reports with reference to Fitch Solutions Macro Research (a unit of Fitch Group).
“Irrespective of the tightness on the supply side, we do recognize the growing risks of a more structural slowdown in demand from escalated tension in the US-China trade dispute, which continues to burden the two largest consumer markets for oil. The protracted souring of demand-side sentiment has been reflected in a spate of long liquidations and an increase of shorts of managed money positions,” reads a report released by Fitch Solutions.
The report shows that the reduction of longs and an increase in shorts of managed money positions reflect an increasingly defensive stance taken by money managers.
“Market wariness of macroeconomic headwinds and the potential to affect headline oil demand explain some of this positioning, but concerns of oversupply and the lack of an increase in the net length ratio off the escalating tensions in the Gulf despite tanker attacks and downed drones did little to support the long positions. In general, fund managers continue to be bullish on the outlook for oil prices despite the confluence of negative economic data. The uptick in shorts indicates a strengthening view of further price weakening,” said the company.
Brent remains backwardated over a six-month spread extending its run since early February, but the spread has narrowed sharply despite the OPEC+ extension announcement, according to Fitch Solutions.
“OPEC supported their decision to extend cuts as they forecast lower demand growth adding further down pressure on prices. This may also indicate that the tightening in supply is lessening and expectations for a surplus is building. We believe the tightening is still in play though the bearish statement around OPEC decision to extend cuts paints a less bullish outlook. The current backwardation implies a period of under-supply in the physical market, in our view, this is confirmed by the significant supply-side tightening seen through H119, with dynamics in Venezuela, Iran and OPEC+ removing barrels from the market,” reads the report.
The report says that the weekly average for oil stocks remains near the five-year range high indicating higher than normal stocks in the US. “However, recent US oil inventory data begin to show heavier stock draws and the completion of heavier-than-normal US refining maintenance should see draws continue in the near-term.”
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