Head of Commodity Strategy
The battle between fears of a supply-crunch driven by Iran sanctions and a further collapse in Venezuelan production on one side and the future risk to demand as a result of a slowdown in global growth on the other is likely to keep the oil market rangebound for now.
Following some overnight weakness, crude oil is now trading higher ahead of the weekly stock report from the US Energy Information Administration. The main driver has been renewed threats from Iran concerning the Strait of Hormuz and comments from Fatih Birol, Executive Director of The International Energy Agency. Barol said that the combination of strong demand and unstable supply from the Middle East together with falling supply from Venezuela could see the oil market tightening into the year-end period.
Having broken back above $75/barrel, Brent crude oil is aiming to test the upper band of resistance between $78.50 and $80/b.
Staying on the subject of short-selling, it is interesting to see how limited the interest has been during the past year. Even between July and August when Brent crude oil dropped by almost $10/b, the gross-short (red lines) was kept almost unchanged and close to the lowest seen during the past five years.
With the sentiment once again having turned more bullish due to the increased risks to supply, the net-long is expected to build again. However, the clouded outlook for demand due to trade wars, dollar strength, and EM economies struggling with high debt and rising (dollar) funding costs, is likely to curb the buying enthusiasm relative to what was seen earlier this year.