Oil-oversold?
It’s hard to remember when sentiment was this negative towards crude oil. Yet front-month WTI was perilously close to trading in triple digits less than two months’ ago and all the commentary was around how much further it would rise once it broke above $100. But since then, the decline has been almost continuous, save a small bounce in mid-October. On Thursday it scythed below $73 per barrel putting it in unofficial ‘correction’ territory as it was down over 20% from the September high.
But there’s been a decent bounce since then, which, when added to the current negative sentiment, could result in a more protracted rally as traders are forced to cover their shorts.
Fundamentally, the sell-off came as investors fretted about falling demand, particularly from China, where the economic outlook is bleak. Add in the current supply glut with growing inventories and the obvious path of least resistance was down. But it could be that oil has overshot somewhat, that all the bad news is fully priced in, and a recovery is on the cards. That could be underway, although it’s worth noting that the next big biannual OPEC+ meeting takes place this Sunday. So, we may see some price swings ahead of the event. There are whispers that the meeting in Vienna could result in additional supply cuts which could cut the glut in inventories, and lead to higher prices. The big problem with these deals though is compliance. There are already complaints that some members of the group are failing to stick to cuts already agreed.
But there’s been a decent bounce since then, which, when added to the current negative sentiment, could result in a more protracted rally as traders are forced to cover their shorts.
Fundamentally, the sell-off came as investors fretted about falling demand, particularly from China, where the economic outlook is bleak. Add in the current supply glut with growing inventories and the obvious path of least resistance was down. But it could be that oil has overshot somewhat, that all the bad news is fully priced in, and a recovery is on the cards. That could be underway, although it’s worth noting that the next big biannual OPEC+ meeting takes place this Sunday. So, we may see some price swings ahead of the event. There are whispers that the meeting in Vienna could result in additional supply cuts which could cut the glut in inventories, and lead to higher prices. The big problem with these deals though is compliance. There are already complaints that some members of the group are failing to stick to cuts already agreed.
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