European Union Foreign Exchange

Why are Crude Oil Traders Turning Bearish?

The oil market recovery has been slower than anticipated, leaving crude oil traders impatient.

After numerous cuts from OPEC and Russia last year, prices began to inch upwards. Energy analysts assumed that the record bullish bets would end the slump in oil prices. However, trader’s confidence has been tested since US inventories remain high and the US shale industry has been revived since the price of crude oil has tipped up.

Additionally, the unexpected increase in US gasoline storages has helped trigger the sell-off. The market is waiting for a physical drop in numbers of barrels in storage. However, this could take time, time traders obviously don’t have. Meanwhile, there has been a drop in the number of barrels at sea and in countries where the stockpiles are less transparent. Still, traders remain unconvinced.

One historical trend which traders are overlooking is that inventories often tick upwards in the first quarter.

Instead, traders are waiting to see a decline in storage piles which are easily trackable. Or, in other words, in US stockpiles.

The bearish tones may not be unwarranted however. Rumours that OPEC’s members will defy the cartel and increase their output are rife. Undermining the agreement would spur a sharp-sell off of the commodity.

Source XM Research Desk

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