While US crude inventories probably slid by 2.25 million barrels last week, gasoline supplies may have added 600,000 barrels, swelling stockpiles already at their highest in decades, according to a survey before a government report on Wednesday.
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Hedge funds and other money managers cut their net long position – bets on rising prices – in Brent and USA crude futures and options by 31 million barrels to 453 million in the week ending on July 19.
U.S. inventory reports from industry group the American Petroleum Institute and the U.S. Department of Energy due this week are expected by analysts to show a fall in crude stocks but a rise in gasoline supplies.
“You can’t ignore the size of the inventory overhang”, Evan Lucas, a market strategist at IG Ltd in Melbourne, told Bloomberg News.
Data published by API highlighted a fall in U.S. crude stocks by 827,000 barrels in the week ending 22 July.
Moreover, global benchmark Brent crude was on track for the first monthly loss since January and the largest loss of 2016.
“We will likely break through the $40 levels in days and weeks to come”, said Tariq Zahir, crude trader and portfolio manager at Tyche Capital Advisors in NY.
Around 1145 GMT, US benchmark West Texas Intermediate for delivery in September was down 32 cents at $43.87 a barrel.
Oil prices are still up more than 60 percent from 12-year lows of around $27 a barrel hit by Brent and about $26 struck by USA crude in the first quarter.
“US oil production also increased”, ANZ bank said on Thursday.
“US production still is still a million barrels below where we peaked a year ago”, said McGillian. While talking to CNBC, Tariq Zahir from Tyche Capital Advisers said: “The bottom line is the street has gotten it wrong as far as the oil markets achieving supply-demand balance this year”.
Shell’s net income came in at $1 B in the second quarter, compared with expectations of $2.2 B and $3.8 B achieved in the same period past year. Refining margins have shrunk amid oversupply, hurting downstream earnings.
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Go long in 3M At the money delta put of WTI crude, Go long 6M at the money delta call of WTI crude and simultaneously, Short 1M (1.5%) out of the money call of WTI crude with positive theta. The ongoing fears of oversupply are encouraging hedge funds to liquidate their recent record bullish position, said Matt Smith, Director – Commodity research at US-based crude oil tracker ClipperData. “Production is down one million barrels from a year ago and we have to see if the increase in rigs is enough to have an impact”.
