- Oil traders want deeper oil production cut
- CFTC data in line with Central bank’s reaction
Oil Traders Focus On St Petersburg Meeting
Oil traders have only one thing on their mind – the meeting between six OPEC and non OPEC ministers in St Petersburg. The hopes were high that perhaps they get some sort of clue or acknowledgement from the cartel that their current strategy is not yielding the outcome they were hoping for. More recently, the cartel was trying to put more pressure on countries like Libya and Nigeria which have ramped up their production as they were not handcuffed by the production cut deal.
Oil prices moved higher as the cartel was effective in brining one more member under their umbrella of the production cut. Nigeria agreed voluntarily to limit its production cut to 1.8 million barrels a day (once it reaches that level). Traders were hoping that they get some good news out of this event and they have it.
The net beneficiary of this will remain the US shale oil producers. Since the OPEC oil production cut, they took no time in taking the full leverage of this opportunity by swelling their production. Sadly for the OPEC, they have no control over them. At the current OPEC oil production, the cartel is not going to achieve the kind of results they are craving for, but the threat remains that any production cut by them would present an opportunity for the US shale oil producers.
Finally, on Monday, the oil traders are also paying attention to the fact that some producers are not adhering to their production cut agreement. For instance, Iraq’s OPEC compliance has fallen to a low of 29 percent and this presents a threat to the oil production cut agreement. What we need is a strong statement which should send a rich message that there is no patience for any country not adhering to the rules set during this production cut.
Bets On CFTC Data
The CFTC data released on Friday has confirmed that traders have increased their long euro positions, reduced their sterling short positions and increased their yen short positions. The message is very much clear in this, the institutions are playing a strategy which is in tune with the perspective of the central bank’s policies. However, reducing sterling short positions may end up badly as the central bank is not going to push the buttons on changing their monetary policy in the middle of the Brexit negotiation crisis. Even today, the IMF has lowered the growth forecast for the UK’s economy although they did say that the economy would fall of the cliff if they leave the EU block. The Prime Minister, Theresa May, may be getting ready for a holiday break but the back benchers may take this opportunity to weaken her position as a leader and before we know it, we will have another election.
As for the dollar, short positions are still increasing and this is mainly due to political gridlock in the US, failure of the Trump administration in delivering anything so far, and the debt ceiling approaching. The Federal Chairwomen was pretty dovish in her last testimony in front of the senate. The upcoming FOMC statement on Wednesday would be very critical when it comes to the inflation part as that is a major denominator. Any change to this agenda could change the game altogether. Also we have the US GDP data due this week and even if the number produces a growth of 3% by any magic for the second quarter, it is not going to change the landscape of the yearly GDP.
