Oil market ‘oversold’? Analysts and traders pin crude’s price plunge on demand, trading strategies

Energy
Wednesday, June 5th, 2024 4:49 pm EDT

Oil prices experienced significant declines despite the announcement of extended supply cuts by the OPEC+ alliance, with traders attributing the downturn to certain trading strategies and uncertainties in the demand outlook. Abdulaziz Almoqbel, an energy consultant, highlighted a sentiment among traders to reposition their short and long positions, contributing to a technically oversold market pushing prices down. OPEC+ decided to extend existing formal cuts and voluntary reductions, aiming to maintain these measures until the end of 2025. However, several members opted to stretch out additional voluntary cuts, aiming to gradually reintroduce volumes by September 2025. Almoqbel noted the influence of commodity trading advisors, algorithms, and the options market on price movements, often resulting in downward price trends following OPEC+ meetings. Despite the prospect of market tightness, oil prices fell below $80 per barrel, with Ice Brent and Nymex WTI contracts reflecting declines. UBS strategist Giovanni Staunovo suggested that factors beyond the OPEC+ meeting, such as the options market, played a role in the price drop, anticipating continued volatility until renewed inventory draws drive prices higher. The uncertain demand outlook further contributed to market sentiment, with conflicting projections from OPEC and the IEA. While demand typically increases during the summer, Asian demand for crude remained low, suggesting a borrowed demand increase. Almoqbel emphasized the importance of considering both supply restraints and demand dynamics to accurately assess the oil market’s state, suggesting that the market might not be oversupplied upon closer examination.

For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/05/oil-market-oversold-analysts-and-traders-on-crudes-price-plunge.html