Oil Demand Begins to Slow
The International Energy Agency forecast Friday that global oil demand growth would slow in 2016 and that oil production in nations outside the Organisation of the Petroleum Exporting Countries (OPEC) would stall.
In its first estimates for 2016, the IEA forecast that oil demand would slow next year to 1.2 million barrels per day, compared with an average of 1.4 million barrels per day this year.
Meanwhile growth in non-OPEC oil supply “is expected to grind to a halt in 2016 as lower oil prices and spending cuts take a toll,” the IEA said in its monthly oil report.
Hedge funds and other speculators have made their sharpest cut in more than two and a half years to their bullish exposure toward U.S. crude oil, trade data showed Friday, a further sign that investor confidence in the oil market recovery may be ebbing.
U.S. crude prices sunk to three-month lows on Tuesday as Greece’s debt woes and China’s stock market plunge escalated, while Iran continued with efforts to remove Western sanctions on its exports so it could more ship more oil into an already flooded market.
Corresponding with the oil price tumble, data from the Commodity Futures Trading Commission (CFTC) showed money managers’ net long position in U.S. crude futures and options fell by nearly 20 percent in the week to Tuesday, the biggest weekly decline since December 2012.
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Benchmark U.S. West Texas Intermediate crude futures rallied in the second quarter, rising 25 percent to above $62 from six-year lows of around $42 in March.
But WTI’s slump to just above $50 on Tuesday raised questions about whether oil was on the cusp of another major selloff, after the rout from last summer through March that slashed global crude prices by more than 60 percent.
“If anything, the CFTC report shows everyone was trying to get out the barn door at the same time this week,” said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.
“I would say, at the very least, WTI has likely topped over the short term, and I would expect to see some liquidation in the near future.”
The CFTC data showed money managers cut their combined futures and options positions in WTI by 45,187 contracts to 167,130 during the week to July 7.
WTI settled on Friday at above $52, recovering from Tuesday’s slump, helped by the recovery in China’s stock market and optimism that Greece may have a bailout deal by the weekend. A smaller-than-feared rise in the weekly U.S. oil rig count also allayed fears of drilling that could bring on a surfeit of new supply to the market.
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