Traders in the oil market have been purchasing futures contracts in the six most traded crude and fuel contracts for the past four weeks, driven by an extension of supply cuts by Saudi Arabia and Russia. However, Reuters’ market analyst, John Kemp, suggests that oil prices are now due for a correction as traders have made an excessive number of bullish bets. Over the past month, traders have bought a total of 183 million barrels of crude and fuel futures, bringing the total to 525 million barrels. This surge in buying has resulted in a bullish to bearish bet ratio of almost 8:1.
While some commodity analysts anticipate even higher oil prices, with predictions of Brent reaching $100 or $150 per barrel, Kemp warns of a potential reversal in oil prices. Factors such as high interest rates undermining oil demand and an increase in supply from non-OPEC nations and Russia may contribute to this correction. The Federal Reserve’s balance between recession and growth has also led to price increases, impacting inflation and consumer expectations. Although non-OPEC supply growth, primarily driven by the US, is uncertain, some companies, like Occidental Petroleum, have shown no intention of changing their production plans despite the surge in oil prices.
However, the demand destruction resulting from supply constraints and inflation may cause a decrease in oil consumption in the Western world. It remains uncertain how long current conditions will persist, as OPEC leaders Saudi Arabia and Russia strive to balance pushing prices higher without pushing them too high. In conclusion, while traders continue to bet on rising oil prices, there are indications that a correction is imminent due to excessive bullish bets and potential shifts in supply and demand dynamics.