Oil prices advanced on May 26, as conflicting messages from Russia and Saudi Arabia on supply cuts weighed on market sentiments, ahead of the next OPEC+ policy meeting due for June 4. The number of short positions in oil essentially betting that prices will fall has risen ahead of the next OPEC+ policy meeting, according to analysts, hinting at a surprise decision by the oil producers.
Brent crude was up 54 cents at $76.80 a barrel, while US West Texas Intermediate rose 67 cents to $72.50 a barrel. Benchmarks had settled more than $2 per barrel lower in the previous session, after Russian Deputy Prime Minister Alexander Novak played down the prospect of further OPEC+ production cuts at its meeting in Vienna on June 4. Both indices still look poised to post a second week of gains, upon OPEC+ supply uncertainty.
Also Read: Oil eases as US debt risk weighs on prices and Russia plays down on additional OPEC+ cuts
Russia and Saudi Arabia on OPEC+ supply
Russian President Vladimir Putin announced earlier this week that energy prices were approaching “economically justified” levels, also indicating there could be no immediate change to the group’s production policy.
Their remarks contrasted with comments this week from Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, the de-facto leader of the Organization of Petroleum Exporting Countries (OPEC), warning short sellers to “watch out”. Investors interpreted that as a signal OPEC+ could consider further output cuts.
Meanwhile, the number of short positions surged ahead of the OPEC+ meeting. Short sellers are those who position themselves to profit if prices fall, such as by selling borrowed assets in the hope of buying them back more cheaply. So, when an unexpected OPEC+ production cut causes oil to rally, they are faced with a loss.
Also Read: OPEC’s losing race against inflation: The price of a barrel of oil at an all-time low
Where are oil prices headed?
Analysts at Standard Chartered bank said in a report this week that short speculative positions in crude oil are now as bearish as they were at the start of the pandemic in 2020 – when oil demand and prices collapsed. “We think the latest build-up in short positions significantly increases the probability of further production cuts when OPEC+ meets,” according to analysts.
Ole Hansen, head of commodity strategy at Saxo Bank told news agency Reuters that speculators have recently increased their gross short position in U.S. crude and Brent to near the level seen prior to April 2, when Saudi Arabia and other OPEC+ members surprised the market with an announcement of output cuts.
Hansen said the Saudi energy minister’s comments highlight “the current frustration about the market and the influence of short sellers, which have made a strong comeback during the past month”. Following the minister’s warning, some short-sellers “may have second thoughts,” Hansen added.
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Updated: 26 May 2023, 07:14 PM IST