From Francesco Filia of Fasanara Capital
Oil: a weak present and no future
Oil correction (~10% from peak) is not necessarily the foretell of an imminent debacle. Oil corrected by approx. 20% twice in the past months (June-July 2016 and October-November 2016), without derailing the bull trend. Important supports were breached in both instances, and yet Oil managed to resurrect, powerfully.
Authored by Salmon Ghouri via OilPrice.com,
Time is of the essence. If you fail to comprehend future market conditions and fail to steer the ship in the right direction, it can lead to disaster. This is what we have learned during the past few years. OPEC’s failure to understand the future market conditions and speed of technological advancements has resulted in economic setbacks.
With oil's recent somnolent, low-vol levitation at their back, the number of hedge funds and other speculators who were soothed by the gradual move higher and betting on the success of OPEC reflationary strategy, had recently grown to an all time high, as seen in the chart below showing the number of long net-spec positions in the combined oil futures market.
So when the price of oil unexpectedly tumbled on Wednesday, then continued to slide over the next two days, many were wondering if this sharp reversal in prices would unleash a margin-call driven liquidation scramble.
With US crude inventories at record highs and production surging higher, the ongoing oil rig count rise in America (up 8 to 617 - 8th week in a row and highest since Sept 2015) signals more 'problems' ahead for a record level of speculative long positioning in black gold.
All it took for OPEC to panic, was the sharpest drop in oil prices since last summer, sending WTI not only back under $50, but also wiping out all gains since the November Vienna "supply cut" deal.