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Oil Bear Market Attracts Record Bets on Further Price Slide

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Oil

Hedge funds have gone all-in on lower oil prices, counting on seasonal weakness to play out again this year.

Money managers increased wagers on declining crude prices to a record as futures dropped to the lowest in more than three months. U.S. crude inventories climbed for a second week as imports arrived at the fastest pace since 2012. The supply gain comes on the cusp of seasonal refinery maintenance that will curb crude demand. Futures have declined in each of the past five Septembers.

“We’re are entering a period of seasonal maintenance, which should put some downward pressure on prices,” said Scott Roberts, co-head of high yield investments and manager of $2.7 billion at Invesco Advisers Inc. in Atlanta.

Hedge funds increased their short position in West Texas Intermediate crude to 218,623 futures and options combined during the week ended Aug. 2, the highest in data going back to 2006, according to the Commodity Futures Trading Commission.

WTI closed 22 percent below its June peak on Aug. 1, meeting the common definition of a bear market. It dropped 7.9 percent to $39.51 a barrel in the report week. Prices were up 1.9 percent at $42.61 as of 8:36 a.m. on Monday.

U.S. crude supplies rose to 522.5 million barrels as of July 29, the highest seasonal level in decades, Energy Information Administration data show. Imports climbed to 8.74 million barrels a day, the most since October 2012.

Refinery Rates

Refineries operated at 93.3 percent of capacity in the week ended July 29, the highest since November. Refiners typically bolster their operations in June and July to meet peak gasoline demand before ratcheting back in August. Over the past five years, refiners’ thirst for oil has dropped an average of 1.2 million barrels a day from July to October.

“Refinery margins are weak, global demand growth is decelerating and there’s upcoming seasonal weakness for both crude demand and product demand,” Mike Wittner, head of oil market research at Societe Generale SA in New York, said on Bloomberg Television Aug. 4. “To me it has a taste of the classic autumn downturn.”

Technical factors are also weighing on crude prices. WTI settled below the 50, 100 and 200-day moving averages on Aug. 1 for the first time since February.

The market has further to fall before hitting key support, according to Paul Ciana, a technical analyst at Bank of America Merrill Lynch in New York. “We need to form a bottom in the mid-to-upper $30s before we move back towards $52.”

Bearish Bets

Money managers’ short position in WTI rose 38,489 futures and options and have almost doubled in the past three weeks, CFTC data show. Longs, or bets on rising prices, increased 1.6 percent, while net longs dropped 28 percent to the lowest since January.

In the Brent market, money managers trimmed bullish bets by 28,148 contracts in the week, according to data from ICE Futures Europe. Bets that prices will rise outnumbered short positions by 260,388 lots, the least since January, the London-based exchange said.

In other markets, net-bearish bets on gasoline fell 20 percent to 4,081 contracts. Gasoline futures fell 2.5 percent in the report week. Net-long wagers on U.S. ultra low sulfur diesel dropped 44 percent to 7,163 contracts. Futures slipped 5.1 percent.

Reversal Higher

Not everyone is on the bearish bandwagon.

The influx of bearish bets from money managers may leave the market vulnerable to a rebound. The past three peaks in short bets have been followed by price gains ranging from 29 percent to 95 percent.

The oil market is poised for a “violent reversal” upward, oil trader Andy Hall wrote to investors in his Stamford, Connecticut, hedge fund, Astenbeck Capital Management LLC. “Funds have made a significant amount of money getting short oil in the last few weeks and people will want to take some profits off the table as we approach levels which will only accelerate U.S. production declines.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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