Growing concerns about China’s economy and oil demand prompted traders to head for the exit and reduce their net long positions in both key benchmarks last week.
Speculators reduced their net long position – the difference between bullish and bearish bets – in ICE Brent by 37,541 lots over the latest reporting week to July 23, leaving them with a net long of 146,349 lots as of last Tuesday, ING’s commodities strategists Warren Patterson and Ewa Manthey wrote in a note on Monday.
Traders also dumped WTI Crude, with the net long position in NYMEX WTI slashed by 24,312 lots to 239,237 lots.
“Concerns over Chinese demand have led to these speculative outflows,” ING’s strategists said, adding that crude oil wasn’t the only commodity to see traders heading for the exit. Metals have also suffered due to the concerns about the Chinese economy.
Early on Monday, oil prices rose at the start of trade as a rocket strike on the Golan Heights rekindled fears of a conflict escalation in the Middle East.
On Saturday, a rocket strike on the Israel-annexed Golan Heights killed more than a dozen people. Hezbollah denied responsibility for the attack but the Israeli government has threatened retaliation against the Lebanon-based group, sparking the latest round of escalation fears.
Yet, the price move higher was modest in early European trade, amid lingering concerns about global, and most of all Chinese, demand.
Apart from the Middle East and China, the market will be watching this week the August 1 meeting of the Joint Ministerial Monitoring Committee (JMMC), the OPEC+ panel monitoring the oil market. The panel is not expected to recommend any changes to the current production policy plan of the group.
Most market observers reckon that OPEC+ would wait to see how summer demand will have held up by September, before potentially starting to unwind part of the current production cuts.
In early June, the OPEC+ group decided to extend most oil output reductions into 2025. But it also said it could begin unwinding some voluntary cuts after the end of the third quarter of 2024—subject to market conditions.
ADVERTISEMENT
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Venezuela's Election Authority Declares Maduro Victor in Disputed Election
- Oil Prices Climb Following Saturday's Rocket Attack on the Golan Heights
- Major Automakers Returning to Gasoline Cars as EV Demand Slows
The proof is this casting of doubts about an economy growing at 5% this year and continuing to import large volumes of crude oil and not focusing on the US economy which is growing at around 2% or the EU economy which stagnating at 0.5%.
Another reason is that prices tend to go down before any forthcoming meetings of OPEC+ in anticipation of any changes in the organization's current production policies. However, OPEC+ sees no reason to change its cuts regime.
As usual I expect prices to return to higher levels immediately after the OPEC+ meeting.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert