During a week that saw WTI crude prices erase all post-OPEC-production-cut-deal gains, after the Saudis admitted 'cheating' (but rapidly back-pedalled), oil speculators added almost 80,000 contracts to their short positions - the 2nd most in 34 years.
This surge in shorts reduced the massive record net long crude positioning by the 2nd most in history - but clearly it remains extremely one-sided still...
This is the 3rd weekly drop in a row for the net long position, as hedge funds cut their net bullish positions by the most ever to 14-week lows.
All of which happened as oil prices drifted lower waiting and watching for OPEC's next move (as OilPrice's Matt Smith explains)... prices are struggling as market participants try to weigh up whether OPEC is going to continue its production cuts (or even implement them in the first place). Hark, here are five things to consider in oil markets:
1) We've been highlighting for a while that Saudi Arabia could be looking at supplementing lost revenues from the OPEC production cut by exporting more products. We have published a white paper in recent days (accessible here) which digs into this theme a bit more, as well as other key elements of the current oil market.
The chart below is lifted from the white paper. The refinery utilization rates of Saudi Arabian and UAE refineries have been lower than the rates of their global peers; ramping up their refining activity would allow the two producers to ship more petroleum and make more money while keeping crude oil out of the global balance. February's rebound is pointing furiously to that, after seasonal maintenance comes to a close:
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2) Following on from the above, Saudi and UAE have built additional export-focused refinery capacity to the tune of 1.4mn bpd in the last four years. Saudi is planning to double its global refining capacity within ten years, with these additions starting by the end of the decade:
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3) Here we are, supposedly in the midst of the OPEC production cut, and Iraq continues to export with seeming reckless abandon. According to a spokesman at Iraq's oil industry, exports from both northern and southern Iraq were at 3.87mn bpd last month; we see in our ClipperData that this month's pace is even higher.
To add further fuel to the fire, Iraq is planning to increase output to 5mn bpd by the end of the year. The country is - apparently - still committed to the OPEC production cut. Hum dee dum.
4) According to reports, Rosneft has been offered a 10 percent stake in a joint venture in Venezuela's Orinoco Belt, as PdDVSA - Venezuela's state-run oil company - scrambles to try and raise cash. PdVSA needs to service its debt, with its next obligations estimated at $3 billion in April.
5) There is an interesting take on global demand in the WSJ, which draws attention to the fact that global oil demand usually gets revised up from initial estimates. Over the last 7 years, the IEA's annual estimates for global demand have been revised up by 880,000 bpd.
Both the IEA and OPEC see demand growth easing lower from last year's pace. IEA sees demand growth slowing to 1.4mn bpd this year, from 1.6mn bpd in 2016, while OPEC sees it slipping from 1.38mn bpd in 2016 to 1.26mn bpd this year.
While in isolation, this may seem bullish for prices, it does raise a key question: if the IEA is missing the target on demand, isn't it just as likely to miss on its supply estimates?
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Of course, as a reminder, it is the speculative futures flows that really drive the oil markets (more-so than fundamentals most of the time) which have become massively financialized over the past years...
As Mike Rothman from CornerstoneAnalytics shows above, the paper market for oil is 29.5 times world demand of the physical stuff. In 1997, it was 3.3 times!