ICE Futures Europe (ICE Futures Europe) showed that fund managers' net long position in Brent crude oil decreased by 102,075 contracts to 45,678 contracts as of the first week of June, the lowest level of net long positions since September 2014.

Oil prices have been weak for more than a month due to sluggish demand and weakening geopolitical risks, and the latest OPEC+ decision surprised some market participants, with trend-following algorithmic trading accelerating the decline in crude oil prices at the start of the week.

In the face of concerns and doubts about the lack of demand, the alliance of oil producers reaffirmed its confidence in the effect of the production cuts. Next week's monthly market reports from institutions such as OPEC will give investors more clues about the market outlook and could also be an important watershed moment for the short-term direction of oil prices.

OPEC+ hits back with doubts

The OPEC+ Joint Ministerial Committee on Sunday agreed on a new round of production cuts, agreeing to gradually release 2.2 million b/d of voluntary production cuts starting in the fourth quarter of this year, and extending the collective cuts of about 3.66 million b/d that were due to expire at the end of this year until the end of 2025.

However, the volatility in oil prices continued, with two major contracts, WTI and Brent, falling to four-month lows mid-week.

Crude Oil Broker PVM Tamas, Senior Market Analyst at Oil Associates Varga) said in an interview with CBN that the current oil market is full of challenging and chaotic situations. He believes that the global economy has avoided the risk of a severe recession, but the question is how optimistic the outlook can be, and to pay attention to the interest rate cuts of major central banks, "OPEC+ is now starting to prepare for the release of capacity, which may be a little premature." ”

Many market participants also warned that the market will be oversupplied next year, considering OPEC's high spare capacity and rising production from countries outside the alliance.

In response to questions and concerns from the outside world, OPEC and other member countries responded at the St. Petersburg International Economic Forum on the 6th. OPEC Secretary-General Haitham Al-Ghais said the recent adjustments to the OPEC+ oil production deal have been successful, and he expressed optimism about the continued strong oil demand during the tourism rebound.

In the coming week, OPEC, the International Energy Agency (IEA) and the Energy Information Administration (EIA) will release monthly reports one after another, which can focus on the judgment of market supply in the second half of the year. At the same time, OPEC's headline production, OECD inventory data and U.S. oil production forecasts will be key areas of focus for market watchers.

Hidden dangers and uncertainties in demand

With the arrival of the peak summer consumption season, the performance of the demand side is very critical to the trend of oil prices in the second half of the year.

Saudi Arabia cut prices this week after raising the price of its flagship Arabian Light crude for Asian customers in July three times in a row due to uncertainty over the demand outlook. At the same time, U.S. inventory pressures have risen, with U.S. commercial crude inventories rising by 1.2 million barrels in the week ended May 31 versus expectations of a decline of 1.6 million barrels.

It's worth noting that the U.S. summer driving season has had a dismal start to the year. The supply of finished motor gasoline, which is an indicator of demand, fell to 8.946 million barrels per day last week from 9.148 million barrels in the previous week, the lowest since the pandemic in 2020 and fell below the key psychological level of 9 million barrels.

Tom Coloza, head of global energy analytics at OPIS, a Dow Jones company Kloza) said gasoline demand is currently the most prominent topic of discussion in the industry, "various consumption indicators are moving in the wrong direction, and inflationary pressures are limiting the return of spending power." If refineries continue to process record amounts of crude, this could be a summer bubble. ”

However, the weather can bring uncertainty to the market. The National Oceanic and Atmospheric Administration predicted "above normal" hurricane activity in the Atlantic this year last month. A total of 17 to 25 named storms are forecasted, of which 8 to 13 will be hurricanes.

The Gulf of Mexico accounts for 17% of total U.S. crude oil production, and more than 45% of total U.S. refining capacity is located on the Gulf Coast. In August 2017, Super Hurricane Harvey made landfall in Texas, taking 23% of the U.S. refining capacity offline. Global crude oil prices rose in response, and U.S. gasoline futures surged nearly 30% subsequently.

Jingtai Viewpoint|Pay attention to the destocking of gasoline stocks in the United States

The latest economic data from China and the United States is not good, the United States will sell nearly 1 million barrels of gasoline from gasoline supply reserves, the crack spread has fallen, the demand for gasoline and diesel in the United States has decreased month-on-month, gasoline inventories have not continued to decline in May as in the past two years, and crude oil prices have plummeted.

However, OPEC+ promised to cut production strictly, after all, it still extended the production cut agreement. If oil prices continue to fall, OPEC+ cannot be ruled out to change its production cut policy.

U.S. crude oil production is strained by capital spending, geopolitical risks in the Middle East continue to disrupt markets, and the Houthis continue to attack Israeli-linked ships and expand into the Mediterranean. As the conflict between Palestine and Israel continues, and it is difficult to reach ceasefire negotiations, the United States has restarted its strategic oil reserve program at 3 million barrels per month. The U.S. gasoline supply reserve to be released is only 1 million barrels in total, which is a modest amount.

The peak season of automobile travel in the United States has just begun, coupled with China's economic stimulus policy, the Bank of Canada cut interest rates as scheduled, and the demand for crude oil is expected to improve.