Crude oil: Production cuts drive short seller exodus Crude oil: Production cuts drive short seller exodus Crude oil: Production cuts drive short seller exodus

Crude oil: Production cuts drive short seller exodus

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  The energy sector has rising strongly this quarter with sentiment experiencing a major positive turnaround as aggressive voluntary production cuts from Saudi Arabia continues to tighten the market. However, the fact the bulk of recent aggressive fund buying in response to a +17% rally has been driven by short covering instead of fresh longs, show a current hesitancy about getting too extended. It highlights the risk when a rally is being driven by a political and economic movtivated production cut, and not a sustained rise in demand driven increased economic activity. With that in mind, we maintain our $80 to $90 price range forecast for the current quarter, unless the economic outlook counter to our expectations show signs of improving.

Today's Saxo Market Call podcast
Global Market Quick Take: Europe
Special Edition Podcast: A Deep Dive into Energy Markets

The energy sector, excluding natural gas, has rising strongly this quarter with sentiment experiencing a major positive turnaround as aggressive voluntary production cuts from Saudi Arabia continues to tighten the market. In addition, concerns about the global economic outlook have yet to impact demand in any meaningful way, and together these two developments have seen WTI and Brent reach four-month highs. 

Just like last year, when prices shot higher following the Russian invasion of Ukraine, the rally has been led by tight diesel markets which have sent prices for gas oil futures in London and Ultra-light Sulphur Diesel (ULSD) in New York surging to $123 and $131 dollars per barrel, the highest levels since January. In WTI crude oil, the premium the prompt futures contract, currently CLU3, commands over the next has reach a November high around 70 cents, and the tightness or backwardation of this magnitude has been adding to the bullish sentiment.

Crude oil production from the OPEC+ group of producers fell to a two-year low in July according to the latest Platts OPEC+ Survey carried out by S&P Global Commodity Insights. While OPEC pumped 27.34 million barrels/day, non-OPEC allies produced 13.1 million barrels/day, with the bulk of the reduction being driven by Saudi Arabia’s aggressive voluntary production cut which so far has been extended to include September. The one million barrel a day cut has seen the Kingdom’s production slump to a two year low just above 9 million barrels a day, some two million barrels below what it pumped last September. Ahead of their pledge to cut August exports, Russian production held steady, thereby overtaking Saudi Arabia’s position as the biggest OPEC+ producer. 

Source: Platts OPEC+ survey by S&P Global Commodity Insights

At the beginning of June managed money accounts held a 231k contract combined net long in Brent and WTI, and apart from the March 2020 Covid-19 outbreak slump, this was the lowest belief in higher prices since 2014. The Saudi energy ministers' vocal threat to hurt speculators seems to have been successful after the mentioned production cut helped drive a six-week buying spree that according to the latest Commitment of Traders Report covering the week to August 1 helped lift the combined net long by 82% to 421,000 contracts or 421 million barrels. While the WTI contract has seen the biggest jump in net length, the main driver behind the overall change has been short covering with the Brent and WTI gross short down 116k contracts to 88k, a three-month low. 

However, the fact the gross long has only risen by 74k contracts or 17% during the mentioned six-week period where prices rallied by more than 17%, in the process breaking several key technical levels, highlight a current hesitancy about getting too extended. Not least considering the rally has not been driven by rising demand but by a politically and economically motivated production cut which at best can be considered temporary. For that to change and prices move even higher, the global economic outlook needs to improve and with our CIO’s bold call for stagflation to emerge in the coming months, this according to our expectations looks increasingly unlikely. Potentially preventing Saudi Arabia from adding barrels back into the market while raising the risk of prices revisiting support, in Brent towards $82 and WTI towards $77.50. 

In Brent, the key level of support can be found around the 200-day moving average, currently at $81.54, and while looking increasingly stretched the price is currently challenging to April high at $87.50 and while having enough momentum to break it may struggle to challenge, let alone break the January high at $89. 

Source: Saxo

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.