At this stage we doubt that the aforementioned developments will significantly impact the overall bullish sentiment in oil markets. Over the past four weeks, the combined gross short in WTI and Brent has only risen by 2,200 lots while the gross-long has been cut 141,000 lots. This reflects how the July sell-off was driven by long liquidation and not fresh short selling.
As long as Brent crude remains above the important $71/b level, we doubt this situation will change to become more challenging for the bulls.
Multiple supply disruptions led by Venezuela and soon also Iran (once US sanctions begin to bite) are likely to keep the market supported. The contango at the front of the Brent curve that emerged last month due to rising GCC and Russian production together with the mentioned slowdown in Chinese import is only expected to last for another two months before reduced supplies from Iran could move the forward price structure back into a price supporting backwardation.
Just like the structure currently witnessed in WTI where a 10-week consecutive inventory decline at Cushing, the delivery hub for WTI futures, has taken total stocks down to 23.7 million barrels, the lowest since 2014.