Enthusiasm on the oil market seems has no end. Investor optimism is starting to break records, and it could be negative news for the price of oil.
Big hedge funds have reported record strikes on both US and European oil growth, and are also expecting a rise in petrol and diesel prices. So far, hedge funds are hedging in the biggest volumes for ten years after the oil price recorded the best January since 2006.
This suggests that investors’ interest in buying oil could continue over the next few months and this year could be positive for oil.
Fundamentals for oil growth are several: OPEC is committed to lower production this year, which has certainly helped the oil market rebalancing. Demand for oil is on the rise and stocks in the US are falling at a rapid pace (although we see an increase in production due to higher oil prices). Last but not least, the dollar has also supported the falling dollar, which has been at about 15% since the beginning of the year against other world currencies.
In addition, oil futures are trading in backwardation, which means that the price of oil is lower in the coming months than the price in the coming months to the present. This is not a standard for the commodity market and suggests that demand for oil is currently very high, pushing up the price. Last oil was in backwardation in 2014.
From a technical point of view, there is a strong growth momentum and we can see the continuation of the bullish trend. Deficits could continue to be purchased, and if the US dollar weakens at the current pace, the capital will be poured into commodities.
Analysts have therefore increased the estimated WTI crude oil price to around $75 per barrel for the end of this year, and so oil has about 10% room for growth if it wishes to meet these forecasts.
At the same time, however, it should be noted that long positions on WTI’s oil are at the highest levels in history, and therefore closure of these longs could trigger a correction. However, the trend remains bullish.
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