Technical & Fundamental Oil Reports Specialists

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Return of the DUCs

Published Wednesday, July 6th, 2016

Hot on the heels of their best quarterly performance since 2009, there is a general consensus that favourable supply-side developments will continue to underpin solid oil price gains over the next six months. Nowhere is this more apparent than in the oil futures complex where the 2H ICE Brent and NYMEX WTI strip are currently priced at $49.28/bbl and $48.26/bbl respectively which represents a $8/bbl increase on the average seen in 1H. Despite this encouraging oil price outlook there remains pockets of unease among some oil market participants and most notably financial managers.

Speculators slashed their combined bullish bets on Brent and WTI prices by more than 72 million bbls in the week to June 28 to a four-month low. Though this was partly as a result of the post-Brexit fallout, the slump was driven by a liquidation in gross long positions and has been part of a similar trend over the last three weeks. During this period, the total fall in gross longs in WTI topped 32 million bbls and now stands at its lowest since January of this year. The decline has been even more pronounced on Brent which having suffered its biggest weekly drop in longs since May 2015 in the latest reporting period, has seen gross longs fall by 46 million bbls over the last three weeks.

At the heart of this fresh bout of investor angst is the rise in oil prices toward the symbolic $50/bbl mark. This price level has been flirted with in recent weeks and is increasingly seen as the magic number at which US shale oil producers will start pumping again. Evidence of this coming into being has been highlighted by a modest recovery in US oil drilling activity. After tumbling from a peak of 1,609 at the end of 2014 to a low of 316 in May of this year, US drillers have since added 25 oil rigs as prices neared the key $50/bbl level.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.