Oil markets begin to slide as Great Unwinding resumes

Futures trading

SHARE THIS STORY

WTI Jul15Oil prices have fallen around $5/bbl, since my suggestion last week that a “New oil price fall was a matter of “when”, not “if”“.  It thus seems increasingly likely they are resuming their fall back towards $30/bbl, as we discussed in last week’s pH Report webinar.

Financial players clearly misread the market when they assumed earlier this year that prices would ‘inevitably’ move higher, and now we will all suffer for their mistake, as markets continue their Great Unwinding.

The funds first began to believe in higher prices after the SuperBowl coup back in January, when prices jumped 20% in 2 days.  This pushed prices up in very thin trading.  But financial players clearly didn’t understand this was just a very clever trading move, and instead decided that it marked the repeat of the Q1 2009 rally.  As the chart shows:

  • Prices then had bottomed below $40/bbl, but moved into recovery as central banks began stimulus efforts
  • Fortunes were made as prices moved up to $125/bbl, due to the scale of the liquidity provided
  • And clearly many players thought they saw a similar pattern developing in Q1 this year
  • As a result, they are storing oil in tanks all over the world, as well as in floating storage

But this is not 2009 all over again. Central banks are most unlikely to add another $35tn of stimulus to that already supplied. Instead, we are seeing the Great Unwinding of all this stimulus, as China heads in a New Normal direction, and the Eurozone countries start to realise Greece’s debt will never be repaid.

The fundamentals of supply/demand are, of course, of no interest to the commodity funds.  As discussed last week, they currently have $69bn to invest in the futures – and $69bn can buy a lot commodities such as oil at today’s lower prices

The result is that we now have record inventory levels in the US and Europe, plus near-record levels of floating storage.  Equally important for Asian markets is that China is probably close to ending its buying to build its strategic oil reserve to cover 100 days of demand.

Obviously prices will bounce around from day-to-day and week-to-week.  But barring geo-political upset,  it is very hard to see why they should not continue their fall, now they have begun to slide again.

 

PREVIOUS POST

Business models have to change as BabyBoom dividend ends

06/07/2015

Major change is underway in the global economy: Global GDP has grown 10-fold ove...

Learn more
NEXT POST

H1 sees worst-ever number of chemical plant force majeures

08/07/2015

The first half of 2015 was the worst half-year for force majeures in the chemica...

Learn more
More posts
Futures markets, US shale, the big winners from OPEC meeting
07/12/2016

There were only two winners from the past 3 months of OPEC’s “Will they?, Won’t th...

Read
China has burst the commodities superbubble
30/09/2015

China’s New Normal policies are taking global commodity markets in a new direction, as I descr...

Read
Markets pause for breath as oil traders enjoy upstream volatility
16/02/2015

There are some signs of a recovery in some markets, but the overall picture is still very quiet for ...

Read
Oil prices jump 20% in 2 days in SuperBowl weekend coup
09/02/2015

An astonishing coup appears to have begun 10 days ago, in the last 45 minutes of trading in US oil ...

Read
August highlights
04/09/2014

Many readers have been taking a well-earned break over the past few weeks.   As usual, therefore, ...

Read
Oil prices break out of their triangle – downwards
27/08/2014

The Great Unwinding of the central banks stimulus policies is underway, as discussed last week.  Oi...

Read
US oil inventories hit record high as supply increases
30/04/2014

Imagine that 5 years ago, you had been asked by your Board to forecast future oil prices.  And supp...

Read
Oil prices vulnerable to China property market fall
09/04/2014

Oil futures markets are a wonderful thing, in theory.  They are supposed to enable price discovery,...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more