Oil prices have continued to fall since the second half of May as some commentators described the volatile market as the worst four-week run since the 2008 financial crisis. If that is an accurate description of the market, then we should also consider the retreat in major equity share indexes such as the S&P 500 and the Dow Jones.
Oil prices rebounded slightly at the end of the week on the news that OPEC+ will probably continue its output cuts throughout the year. Brent and WTI crude prices rose to $63.29 and $53.99 per barrel, respectively. However, falling oil prices for the past month have not taken the strength out of the forward curves, which still suggest tight physical crude oil markets.
We can observe the tightness in the market in the forward curve of Brent futures, where deliveries in future months are cheaper than current prices. This scenario, known in the oil trading sector as "backwardation," is a fundamental support to the market that is not reflected in oil prices.
The latest data from the Energy Information Administration (EIA), shows US inventories featured more than 22 million barrels in crude, gasoline and diesel stocks. Crude inventories have risen in three of the last four weeks despite expectations for declines. Strong China oil imports and increased US refinery utilization that reached a 4-month high above 90 percent hardly denote an economic slowdown.
The rise in US inventories has acted to either drive speculators away from bets on higher prices or to encourage bearish speculators to short the market and bet on lower prices, which is one of the factors behind oil price weakness in recent months.
Speculators have taken advantage of the price fall by increasing their bearish bets, a change from recent weeks that was more about these same speculators closing out bets that prices would rise.
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