Seventy-seven years after Gene Autry recorded ‘back in the saddle again’, and the bears are in control to start the week. Although an oil strike in Kuwait is helping to temper losses, the sucker-punch provided by the collapse of production freeze talks in Doha yesterday has the bears taking the reins today.
The latest CFTC data out on Friday showed that speculative net long positions in WTI crude oil increased ahead of the Doha meeting. Once again, however, the increase was driven by hedge funds becoming ‘less bearish’ as opposed to ‘mo’ bullish’.
Bearish bets – aka short positions – shrank by 18% last week, while long positions increased by a mere 0.8%. Nonetheless, the increase in net-longs illustrates that expectations of a production freeze from the Doha meeting were weirdly high.
Crude’s losses today are being kept in check by news from Kuwait. A strike by Kuwaiti oil workers, kicked off yesterday, is severely impacting production from the nation. Output is said to have dropped by over 60% down to just 1.1 million barrels per day, as thousands of workers have walked out.
To put this in some context, our ClipperData shows that Kuwaiti loadings averaged 1.86mn bpd last year, with nearly 80% of this volume heading to Asia. South Korea was the leading destination, then the usual suspects of India and China. The US was the fifth-largest recipient of Kuwaiti crude, with crude oil loadings averaging over 200,000 bpd.
Finally, I was out on CNBC Squawk Box this morning, discussing how the wheels of rebalancing are already in motion for the global oil market, as non-OPEC supply is already falling.
Hot on the heels of the drop in US production below 9mn bpd last week (h/t the EIA inventory report) comes the latest forecast from the IEA. It shows that the drop in non-OPEC supply should accelerate through the duration of the year and into 2017. Regardless, of Doha, the market is starting to rebalance.