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14 Apr 2015
Crude oil: Net longs increase, but outlook remains bearish – RBS
FXStreet (Barcelona) - Global FX Strategists at RBS, comment on the Crude oil spec positioning, and further explain that the call for an oil bottom might be distant as the supply glut keeps the outlook bearish.
Key Quotes
“Specs are net longs on crude oil futures. Over the last week, they added 26k to 252k as WTI stabilised around the $50 handle ($56-58 on Brent).”
“A few chartists have been calling the bottom on crude oil and that may add to specs’ conviction to add to longs. We continue to think that the supply glut makes for a bearish outlook on oil prices.”
“That said, we would also note that: The Yemen conflict continues to escalate. Many commentators view this as a proxy-war between Iran and Saudi Arabia. The Saudi-led coalition is still conducting aerial bombardment of Houthi rebels in Yemen, supported by the US. Iran has since deployed two warships near the coast of Yemen and tensions are running high.”
“As we highlighted in our previous note, the waters between Yemen and Djibouti – Bab al-Mandab - is a potential choke-point for world oil supplies. This may eventually create negative supply shocks and therefore merits close monitoring.”
“The International Energy Agency (IEA) expects Iranian supply to rise meaningfully only in 3-5yrs if the ongoing nuclear negotiations reach a favourable conclusion by June. The topic of how fast Iranian crude production can return to pre-sanctions highs of 2.5mbpd has been subject to much debate. If IEA is indeed correct, bearish oil views premised on an Iranian supply wave may need to be tampered.”
“IEA also notes that oil firms are likely to cut as much as $100bn in 2015 on exploration and production due to lower prices. That equates to a 20% cut in investment by global oil firms and exceeds capex rollbacks over the past recessions. US production – which has been the game-changer in energy markets - could potentially decline over the next quarters, according to the IEA.”
“Already, there have been anecdotal press reports on shale oil producers cutting back another 42 last week to 706 according to the Baker-Hughes survey. So far, well productivity and rising inventories has eclipsed impact of the rig count drop, but a lower rig count could be a significant variable on future production. It’s worth noting that US inventories (ex-strategic stockpiles) rose ~11m last week to a new all-time high of 482.4 million barrels.”
“On balance, the headlines support a cautious stance on oil prices in the near term.”
Key Quotes
“Specs are net longs on crude oil futures. Over the last week, they added 26k to 252k as WTI stabilised around the $50 handle ($56-58 on Brent).”
“A few chartists have been calling the bottom on crude oil and that may add to specs’ conviction to add to longs. We continue to think that the supply glut makes for a bearish outlook on oil prices.”
“That said, we would also note that: The Yemen conflict continues to escalate. Many commentators view this as a proxy-war between Iran and Saudi Arabia. The Saudi-led coalition is still conducting aerial bombardment of Houthi rebels in Yemen, supported by the US. Iran has since deployed two warships near the coast of Yemen and tensions are running high.”
“As we highlighted in our previous note, the waters between Yemen and Djibouti – Bab al-Mandab - is a potential choke-point for world oil supplies. This may eventually create negative supply shocks and therefore merits close monitoring.”
“The International Energy Agency (IEA) expects Iranian supply to rise meaningfully only in 3-5yrs if the ongoing nuclear negotiations reach a favourable conclusion by June. The topic of how fast Iranian crude production can return to pre-sanctions highs of 2.5mbpd has been subject to much debate. If IEA is indeed correct, bearish oil views premised on an Iranian supply wave may need to be tampered.”
“IEA also notes that oil firms are likely to cut as much as $100bn in 2015 on exploration and production due to lower prices. That equates to a 20% cut in investment by global oil firms and exceeds capex rollbacks over the past recessions. US production – which has been the game-changer in energy markets - could potentially decline over the next quarters, according to the IEA.”
“Already, there have been anecdotal press reports on shale oil producers cutting back another 42 last week to 706 according to the Baker-Hughes survey. So far, well productivity and rising inventories has eclipsed impact of the rig count drop, but a lower rig count could be a significant variable on future production. It’s worth noting that US inventories (ex-strategic stockpiles) rose ~11m last week to a new all-time high of 482.4 million barrels.”
“On balance, the headlines support a cautious stance on oil prices in the near term.”