Oil: 3rd losing week; One of market’s loudest bulls admits buyers have vanished

 

 It’s not everyday that you get to read a Phil Flynn note that’s virtually bearish on oil. But to hear one of the market’s loudest oil bulls admit that people have been fleeing the long crude game like rats abandoning a sinking ship should be a wake-up call to those who kept drumming for a return to $100 pricing in recent weeks.

“The petroleum buyers are gone, unless you are talking oil call options, as supply and demand take a back seat to rising macroeconomic fears,” Flynn wrote as crude futures headed for a third straight week of losses despite rising over the past two sessions after Thursday’s four-month lows.

“Maybe the buyers of oil have been taken away from the mother ship or maybe they have just ridden off into the sunset, but the reality is we are seeing a short oil position of epic proportions as the market seems to remove the risk of ever rising again.”

New York-traded West Texas Intermediate, or WTI, crude for December delivery, settled at $77.17 per barrel, up $1.43, or 1.9% on the day, adding to Wednesday’s 0.5% rise. For the week though, WTI was down 4.1%, after prior back-to-back weekly losses 6% and 3%. That came after the US crude benchmark 11% tumble for October. 

As WTI settled, UK-origin Brent crude’s most-active January contract was at $81.66, up $1.65, or 2.1% after Thursday’s 0.6% gain. For the week, Brent was down 3.8%, after back-to-back weekly losses of 6% and 2%. Prior to that, the global crude benchmark lost 11% in October.

With the US 10-YearTreasury yield rebounding over the past two sessions, the Fed may have to offer much higher rates to get investors interested in US bonds — adding to market unease that the central bank’s rate hikes may not be over, said Flynn.

“Underneath it all, the crash in the price of oil is either a very ominous sign for the state of the global economy or a sign that it is being driven by fear and not on supply and demand fundamentals,” he added. “The oil market swing in mood has gone from pricing in the biggest threat to global oil supply since the Arab oil embargo 50 years ago to almost a record short position in the history of the oil futures markets.”

Pierre Andurand, one of the most closely-followed hedge fund managers in oil, also pointed out that, “net long speculative positioning in oil (crude products, options delta futures) is fast approaching the lowest since this data exists (2011). The managed money category in the COT (representing hedge funds) sold about 400 barrels in the last 6 weeks.

Most worthy was Andurand’s question on “what drives this selling?”, said Lynn.

The hedge fund said it was “hard to identify a clear reason”, adding: “There have been macroeconomic worries for a while now. However, demand growth has consistently been revised up during the year, and mobility data shows an acceleration in demand and demand growth. Some point to softness in the physical market.”

And while producer alliance OPEC+ is having an all-important meeting on Nov. 26 that could again introduce a tighter oil supply mentality, for now its exports are rising. Latest data from the cartel shows an expected seasonal rise of 180,000 barrels in shipments, led by Iraq and Iran.