Oil Traders Stretch Futures Market Beyond Limits

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Oil traders have been heavily investing in futures for the six most traded crude and fuel contracts for the past four weeks. This surge in demand can be attributed to the announcement by Saudi Arabia and Russia of an extension to their supply cuts. However, Reuters’ market analyst John Kemp suggests that these bullish bets may signal an imminent correction in oil prices. Traders have purchased a total of 183 million barrels of crude and fuel futures over the past four weeks, bringing the total to 525 million barrels. The ratio of bullish to bearish bets has risen to almost 8:1, leading to concerns of an impending correction in prices.

While some analysts anticipate even higher oil prices, with JP Morgan suggesting that Brent could reach $150 per barrel and other experts forecasting Brent hitting $100 before the end of the year, others predict a potential decline in prices. Factors such as high interest rates undermining demand and the projected expansion of supply from non-OPEC nations and Russia contribute to these forecasts. The Federal Reserve has been closely monitoring energy prices as it aims to balance between recession and growth. The sustained increase in oil prices will have a greater impact on core prices, according to Morgan Stanley analysts. Additionally, Occidental Petroleum’s chief executive, Vicki Hollub, stated that the company has no plans to change its production plans despite the surge in oil prices.

As supply remains constrained and inflation affects spending habits in the Western world, demand destruction may be imminent. However, conditions are expected to change, as OPEC’s leader Saudi Arabia and its partner Russia are aware of the delicate balance between pushing prices higher and pushing them too high. In conclusion, while traders continue to invest in oil futures, there are indications that a correction in prices may occur soon, with various factors influencing the market’s direction.

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