OPEC+ Plans Earlier Meeting

Energy

The oil market has largely ignored growing tensions between the US and China, with oil prices on Friday ending on a positive note, with WTI rallying by more than 5%, and managing to settle above US$35/bbl for the first time since early March. There is plenty of speculative money in WTI, with the managed money net-long position increasing by 14,266 lots over the last reporting week, to leave them with a net-long of 362,724 lots as of last Tuesday. This is the largest net-long speculators have held in WTI since September 2018, showing that speculators have taken advantage of lower prices for an attractive entry point. The fact that we have seen a significant slowdown in US drilling, and production shut-ins, will give these speculative longs some confidence, or at least comfort. Interestingly, ICE Brent has not seen the same degree of buying interest from speculators in recent weeks. While the managed money net-long in ICE Brent increased by 14,757 lots over the last reporting week, the overall position is still rather small, with the net-long standing at 173,196 lots, well below the almost 430k net-long position seen at the beginning of the year.

The divergence between WTI and Brent is well reflected in the spread, with WTI’s discount to Brent narrowing significantly in recent weeks, and currently at around US$2/bbl, compared to more than US$7/bbl at the end of April. The fact that we have now seen three consecutive weeks of stock draws at Cushing, has eased fears of reaching tank tops at the WTI delivery hub, and as a result, has offered relatively more upside to WTI prices.

Finally, there is a proposal to bring forward the OPEC+ meeting to the 4 June, which is currently scheduled for 9-10 June, as this would allow any changes to production cuts to be factored into July nominations. In addition, there are media reports that the alliance are looking at extending current cuts of 9.7MMbbls/d anywhere between 1-3 months. Under the current deal, the group are set to reduce the scale of cuts to 7.7MMbbls/d from July. A shorter period may make an extension more palatable to the Russians, who were not keen to extend current cuts through until the end of this year, which was reportedly suggested by other members of the deal.

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