COLUMN-Oil prices ease as supply outlook improves: Kemp
(Repeats column that ran on Thursday, with no changes)
* Chart: https://tmsnrt.rs/2OAMfKf
By John Kemp
LONDON, Oct 18 (Reuters) - Oil prices and calendar spreads
have softened significantly this month as traders became more
confident about the availability of supplies towards the end of
the year and into early 2019.
Iran's exports have not declined as much as predicted a
couple of months ago and it is now clear they will not fall to
zero, even after U.S. sanctions are re-imposed next month.
Refiners in Turkey, India and possibly China are reportedly
negotiating with U.S. officials over waivers to enable them to
continue purchasing at least some Iranian oil after Nov. 4.
At the same time, Saudi Arabia and other Gulf producers have
boosted their exports in response to the earlier rise in prices
and pressure from the United States to cool the market.
Traders, meanwhile, have become more cautious about the
consumption outlook for the rest of 2018/19, with most
indicators pointing to a loss of economic momentum outside the
As a result, most major forecasters are now predicting a
significant acceleration in non-OPEC oil supplies in 2019 as
well as slower growth in consumption, shifting the outlook from
one of continuing deficits back towards a surplus.
In part, the improved supply picture has come about because
the surge in oil prices during August and September forced both
the White House and Saudi Arabia to adapt their positions.
The United States has softened its insistence on forcing
Iran's exports towards zero, while Saudi Arabia has ramped up
its own exports in October and November to alleviate fears about
a possible shortage.
In effect, the oil market found the pain threshold for the
U.S. administration, which lies at around $80 per barrel for
Brent, and pushed prices high enough to enforce a partial course
correction from policymakers.
As the supply outlook has improved, traders have begun to
scale back bets on a crude crunch occurring towards the end of
Hedge funds and other money managers sold futures and
options linked to Brent prices equivalent to 21 million barrels
in the two weeks ending on Oct. 9, after buying 172 million
barrels over the previous five weeks.
Portfolio managers have also sold contracts linked to WTI
prices equivalent to 90 million barrels over the last five
weeks, according to position records published by regulators and
Total hedge fund long positions in crude have fallen to 865
million barrels, from a recent high of 908 million in late
September, while short positions have risen to 93 million
barrels from 65 million.
As hedge-fund buying has turned into selling, spot prices
have come under pressure, with front-month Brent futures
retreating from a four-year high of $86 on Oct. 3 to just over
$80 on Wednesday and below that so far on Thursday.
As hedge fund managers tend to concentrate their holdings in
contracts close to expiry, which are more liquid, selling
pressure has been most pronounced at the front end of the
Nearby futures prices have fallen much more heavily than
contracts with longer to run before expiry, shifting the entire
futures curve from a steep backwardation closer to flat.
Brent’s six-month calendar spread has eased from a
backwardation of more than $2 per barrel at the start of the
month to just over $1 on Wednesday. (https://tmsnrt.rs/2OAMfKf).
In the past, the Brent calendar spread has been a reliable
indicator of the supply-demand balance, and the recent softening
of the spread is consistent with an improved near-term outlook
for global oil supplies.
- Oil prices ease as funds continue profit-taking (Reuters,
- Global economy falters as politicians take expansion for
granted (Reuters, Oct. 11)
- Trump sets implied oil prices target below $80 (Reuters,
- Traders bet Iran sanctions will leave market short of
crude (Reuters, Sept. 11)
(Editing by Susan Fenton)
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