LONDON, May 25 – The number of short positions in oil essentially betting that prices will fall has risen ahead of the next OPEC+ policy meeting on June 4, analysts said, making a surprise decision by producers at those talks more likely.Thank you for reading this post, don't forget to subscribe!
Short sellers are those who position themselves to profit if prices fall, such as by selling borrowed assets in the hope of buying them back more cheaply. So, when an unexpected OPEC+ production cut causes oil to rally, they are faced with a loss.
The Organization of the Petroleum Exporting Countries and top producer Saudi Arabia have long blamed wild oil price swings on speculators, with Saudi Energy Minister Prince Abdulaziz bin Salman promising to inflict pain on them.
Analysts at Standard Chartered bank said in a report this week that short speculative positions in crude oil are now as bearish as they were at the start of the pandemic in 2020 – when oil demand and prices collapsed.
“We think the latest build-up in short positions significantly increases the probability of further production cuts when OPEC+ meets,” the analysts said.
Ole Hansen, head of commodity strategy at Saxo Bank, said speculators have recently increased their gross short position in U.S. crude and Brent to near the level seen prior to April 2, when Saudi Arabia and other OPEC+ members surprised the market with an announcement of output cuts.
The move caused Brent crude to rise 6% to almost $85 a barrel when trading resumed after the weekend on April 3, although it fell back in the following weeks as traders focused on concern about demand and economic growth.
The Saudi minister said on Tuesday he сould inflict more pain on short sellers and told them to “watch out” just days before the next OPEC+ meeting – which also falls on a weekend when the market will be closed.
Hansen said the Saudi minister’s comments highlight “the current frustration about the market and the influence of short sellers, which have made a strong comeback during the past month”.
Following the minister’s warning, some short-sellers “may have second thoughts,” Hansen added.
Craig Erlam from broker OANDA, however, said short-sellers might be tempted to maintain their positions.
“The prospect of another “ouching” moment is seemingly too much to bear although if past experience is anything to go by, traders may be tempted to call his bluff”.
Reporting by Alex Lawler Additional reporting by Ahmad Ghaddar Editing by Kirsten Donovan