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The oil markets move from “undefined” to “brave”

The growing optimism in the oil market in recent weeks has resulted in concrete evidence that traders expect an increasingly harder raw market ahead this year. Oil market players now expect OPEC's cuts and US sanctions against Venezuela and Iran to continue to tighten the market until the end of 2019. The proof is that the Brent Crude calendar spread for the second half of this year has turned into a backward as high as US $ 0.90 a barrel compared to an account US $ 0.70 At the end of last year, Reuters noted market analyst John Kemp. Reverse is the market situation where last month's prices are traded at a premium compared to prices in the future &#821 1; a sign of a tighter or implied market. In the opposite structure, the contango-last month is lower than the prices in the coming months, pointing to an excessive crude oil and profitably stores oil for future sales. So the transition to backwardation – which was one of OPEC's officially established goals when it began to limit the oil supply in 2017 in step with Russia's signals that many oil market players expect a harder oil market during the second half of 2019 and thus higher oil prices. The latest flip to backwardation in Brent Crude's calendar spread was also helped by returning bullish hedge fund positioning in Brent's near-month futures contract, Kemp argues. Portfolio managers usually focus their investments on contracts closer in time due to the higher liquidity.…

The growing optimism in the oil market in recent weeks has resulted in concrete evidence that traders expect an increasingly harder raw market ahead this year.

Oil market players now expect OPEC’s cuts and US sanctions against Venezuela and Iran to continue to tighten the market until the end of 2019.

The proof is that the Brent Crude calendar spread for the second half of this year has turned into a backward as high as US $ 0.90 a barrel compared to an account US $ 0.70 At the end of last year, Reuters noted market analyst John Kemp.

Reverse is the market situation where last month’s prices are traded at a premium compared to prices in the future &#821

1; a sign of a tighter or implied market. In the opposite structure, the contango-last month is lower than the prices in the coming months, pointing to an excessive crude oil and profitably stores oil for future sales.

So the transition to backwardation – which was one of OPEC’s officially established goals when it began to limit the oil supply in 2017 in step with Russia’s signals that many oil market players expect a harder oil market during the second half of 2019 and thus higher oil prices.

The latest flip to backwardation in Brent Crude’s calendar spread was also helped by returning bullish hedge fund positioning in Brent’s near-month futures contract, Kemp argues. Portfolio managers usually focus their investments on contracts closer in time due to the higher liquidity. Thus, the recovery of bullish speculators also contributed to the transition to the contracts in the future, those for later 2019.

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Over the past two weeks, the feeling on the oil market has become stronger. First, Saudi Arabia signed that it would reduce $ 500,000 in March more than its share of the OPEC cuts and would further reduce exports to below $ 7 million. Subsequently, signs began that the US and China could reach some kind of trading department, which could possibly avert the highly-feared global economic slowdown that could dampen the oil demand. Then there are US sanctions against Iran and Venezuela that limit the supply, while there is uncertainty as to how much additional crude barrels will suffocate from the two OPEC members that Nicolas Maduro digs in to hold on to power and because there is no security how the US would approach the exceptions on Iran’s oil customers when they expire at the beginning of May 2019. Thus, the hedge fund and other money managers increased their long positions in Brent by 10 percent in the week to February 12, the latest available data, and this was the the highest increase in bullish-effective investments since the end of August 2018, according to exchange data compiled by Bloomberg. Bets such as Brent Crude prices will fall decreased by 5.5 percent during the last reporting week. This was the first clear signal this year that portfolio managers are positive about the oil price. The long net position in the Brent difference between what rises prices and bets on a drop has also increased during the previous weeks, but mostly as a result of many shorts being closed since 2018, rather than a renewed bullishness that the oil price would rally.

During the week until February 5, portfolio managers placed more long positions on Brent Crude, but short positions also rose for the first time this year. Although the speculative positioning of the week resulted in a weak increase in the combined net-long position, the increase in short positions suggested that the hedge funds were much more undecided, where oil prices will go next.

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During the week of February 12, the general oil market climate of the hedge funds moved from the undecided to the bullish, with speculative purchases in short-term Brent contracts that accelerates the underlying view that the oil market will be harder in the second half.

Saudi Arabia’s energy minister Khalid al-Falih said this week that he hoped the market would return to balance in April and reiterated that OPEC leaders’ decision to do what is needed to balance supply and demand is “undoubtedly”.

Saudi Arabia and OPEC’s cuts, sanctions against Venezuela and Iran, and hoping that a trade war between the United States and China would be averted, are all bostling the haunting feeling in the oil market. Nevertheless, the increase in US oil production and a return of fear of global economic and oil-based demand growth may slow again.

By Tsvetana Paraskova for Oilprice.com

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