Oil market seesaws over US supply increases, OPEC cut
Prices jump after net long position hit 5-month low
TOKYO/HONG KONG -- Crude oil futures have been volatile as investors expect U.S. shale gas supplies to rise while oil-producing countries continue to cut output to prop up prices.
According to the U.S. Intercontinental Exchange or ICE, net long positions of London-listed oil futures contracted to a five-month low of 170,000 units by May 9. Each unit accounts for 1,000 barrels. The last time the market fell to this level was before the end-November OPEC meeting, where it was agreed that oil producers would cut output for the first time in eight years.
Investors "seem to have lost confidence in OPEC's ability to reduce supply in the market," according to Capital Economics. Short positions surged 8% from a week earlier to 400,000 units by May 9. Brent Crude prices on ICE also declined to a five-month low of $46.64 per barrel by May 5. But by May 17, July contracts for Brent crude were trading at $51.55.
On Monday, Saudi Arabia and Russia pledged to continue cutting supplies to prop up prices and stabilize the market. JP Morgan research noted that the "weak fiscal positions [of Russia and Saudi Arabia] still motivate producers to focus on price stability rather than market share."
Takayuki Nogami at Japan Oil, Gas and Metals National Corp. said: "The stockpile of oil among OECD [referring to the Organisation for Economic Co-operation and Development] countries should be resolved if [the] oil reduction program is prolonged until the end of this year."
Nikkei staff writer Mariko Tai in Hong Kong contributed to this report.