August 19, 2024 at 07:16PM
Oil squeezed higher last Monday on indications of extremely crowded positions on the short side. That surely left shorts feeling the pain in what was the fourth straight day of gains.
But it’s come undone quickly as oil bears continue to point to soft Chinese demand as a catalyst for falling prices. WTI is down $2.12 to $74.49 today as it’s pulled towards the bottom of the range.
There are indications that US production growth will disappoint this year and 2025 isn’t looking any better (especially at $75 WTI) but the market is focused on OPEC+. The group has done virtually all it can to buffer prices and that’s left at least 3 million barrels per day in reserve that are scheduled to begin returning late this year.
OPEC has said that can be delayed but we’re quickly approaching a dynamic where that oil needs to be permanently curtailed to give the bulls a fighting chance at victory.
The Middle East story is certainly taking up some of the bandwidth and is likely part of the rally and then drop in oil. It doesn’t look like Iran or Israel want a war, so that’s a drag but at this point I expect that’s priced in.
I think the next question is what will happen if we go back to $73. That might prompt some verbal intervention from OPEC but that’s about the best that could happen. We get US weekly supply numbers on Tues/Wed but those have hardly been catalysts lately.
The fear is that the drop in oil prices signals a sustained global growth slowdown and I don’t think that reverses until interest rates are materially cut or China truly turns on the stimulus taps.
This article was written by Adam Button at www.forexlive.com.
