Oil prices are under pressure as the short week of trading begins. Brent has dropped to $65 per barrel and WTI to $59.5 per barrel. The main factor weighing on prices is the significantly appreciating US dollar. What is more, the decline in drilling activity in the US that has been ongoing for 23 weeks appears to have stopped. According to Baker Hughes, only one active oil rig was shut down on balance last week. It would seem that the WTI price is now back at a level which makes the production of shale oil attractive again. Especially oil rigs that had not quite been completed previously are likely to be drilled to the source and then put into operation at the current price level. This is likely to prevent the decrease in US oil production anticipated by many market participants, meaning that money managers could withdraw from the oil market again. Their purchases had been one major factor in driving up oil prices by as much as 50% – since March in the case of WTI and since January in the case of Brent. Last reporting week already saw speculative net long positions cut in both Brent and WTI. At just shy of 38,000 contracts, the reduction in the case of Brent was actually fairly sizeable. Nonetheless, the levels of speculative net long positions – at 243,000 contracts in Brent and a good 250,000 contracts in WTI – are still very high in absolute terms, so there is still correction potential here. After all, the oil market remains significantly oversupplied despite the euphoria among investors in recent weeks, as the OPEC production surveys are likely to confirm when they are published at the end of the week.
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