Crude futures down over Easter holiday; investments banks warn of return to $30 levels
Crude futures fell on Monday as European markets observed the Easter break while U.S. data showed hedge funds and other big speculators still slow to build long positions after the oil price rebound of the past two months.
Brent and U.S. crude’s West Texas Intermediate (WTI) futures traded at under $40 a barrel as investment banks such as Barclays and Macquarie warned that market fundamentals were weak enough that prices could possibly return to mid-, or even lower, $30 levels.
“There’s just been too much U.S. crude builds lately for the market to ignore,” said Tariq Zahir, who’s betting WTI for delivery in the near-term will weaken further versus long-term contracts, expanding the market’s so-called contango structure.
Brent LCOc1 was down 69 cents, or 1.7 percent, at $39.75 a barrel by 11:15 a.m. EST (1515 GMT). Reuters data showed trading in the U.K.-based benchmark amounted to less than 55,000 lots, about a sixth of regular volume, due to the Easter break.
New York-based WTI CLc1 slipped 46 cents, or 1 percent, to $39.
Despite the retreat, both benchmarks were still up about 50 percent from 12-year price lows seen in mid-February.
Data from the U.S. Commodity Futures Trading Commission suggested that money managers, including hedge funds, hesitant to wager all the way on a WTI rally despite a continuous drop in short positions held by the group.
Managed money’s gross long positions in WTI 3067651MLNG have barely risen since January and inched up by just 6,000 lots to around 300,000 lots in the week to March 22, the CFTC data showed. The number of short positions 3067651MSHT slipped to nearly 64,000 lots, or around 64 million barrels of oil.
U.S. crude inventories USOILC=ECI rose by 9.4 million barrels in the last week to their another consecutive record, three times larger than analysts’ expectations for an increase of 3.1 million barrels. [EIA/S]
Barclays said net flows into commodities totaled more than $20 billion in January-February, the strongest start to a year since 2011.
“If commodity markets get hit by a concerted burst of investor liquidation of the long positions built up in recent weeks … (there is) the potential for a 20-25 percent move down in prices if positioning were to return to the average levels of the past few months,” it said. “Were such a scenario to unfold, the price of oil could fall back to the low $30s.”
