Oil short-selling unwinds amid Shale woes and trade hopes

Andia Rispah
  • November 19th 2019, 13:44
  • Last Updated: November 19th 2019, 13:53
  • Hedge-fund managers unwound bets that crude oil would fall at the fastest pace in 16 months.
  • Prospects for a trade war deal and a slowdown in Shale drilling helped futures rebound.
  • Signals that price rebound may be short-lived, mainly because there are still concerns about the global economy and imminent supply influx from places like Brazil and Guyana.

Hedge-fund managers unwound bets that crude oil would fall at the fastest pace in 16 months. Prospects for a trade war deal and a slowdown in Shale drilling helped futures rebound.

According to the Friday data, oil short-sellers cut their bearish positions on West Texas Intermediate crude by 41% in the week that ended Nov.12.

They will be contributing to oil’s 10% rebound since early October as they come into the market as buyers to close positions.

We saw a pretty significant amount of short covering this last week,” said Daniel Ghali. 

Ghali is a TD Securities commodity strategist.

“That’s in line with recent optimism we have seen, much of which was driven by optimism on the trade file, and also a relatively more recent narrative that the shale patch is not going to be able to sustain its output profile.

US explorers are still pumping crude at a record clip. Drilling has plunged to the lowest level in more than two years as companies come under increasing pressure to cut spending, as many are strapped for cash. It means an eventual slowdown in output.

It also helps that the US is signaling trade agreement with China. Larry Kudlow said on Thursday that trade negotiations were coming down to the final stage. 

WTI ended the week at $57.72 a barrel- its highest in almost two months.

Signals that price rebound may be short-lived

According to the US Commodity Futures Trading data, the difference between bullish and bearish bets rose 32% to 153,174 futures and options.

The more bullish stance was entirely due to the short-selling slump; however, long-only bets fell 3.3%.

Signals that price rebound may be short-lived, mainly because there are still concerns about the global economy and imminent supply influx from places like Brazil and Guyana.

Currently, it seems the world will still need more oil. Again, legendary oil trader- Andy Hall joined the International Energy Agency (IEA) in predicting oil demand will probably plateau in a decade. 

IEA predicts the current growth rate of 1milion barrels a day, or about 1% will hold for the next five years.

A critical development will be a meeting of OPEC and its allies next month. If they decided to cut production further, they should give prices a boost. If not, worries over a world awash with oil will probably resurface.

“It’s tough to be bullish longer term. We seem to have a lot of oil coming online. If the price is going to maintain this level, we will need a lot of OPEC support.” said Bill O’Grady.

Bill is the chief market strategist at Confluence Investment Management LLC in St. Louis.

About the author

Andia Rispah
Andia Rispah
Andia Rispah is a Personal Finance & Investment Writer who helps Financial Advisors to create valuable content to help their clients make smarter financial investments. I use my industry experience to write content that builds awareness, trust and turns readers into raving fans.

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