Oil surges on back of hedge fund optimism

By Peter Milios | More Articles by Peter Milios

Oil prices climbed for the second day in a row as hedge funds displayed increasing confidence in tightening global supplies, hinting at a potential resumption of the rally that briefly paused last week. West Texas Intermediate (WTI) futures rose by as much as 0.7 percent, surging above the $90 per barrel mark. This surge in optimism comes on the heels of hedge funds significantly increasing their bullish positions in oil, reaching levels not seen since February 2022. Meanwhile, JPMorgan Chase added its voice to the chorus by predicting an "oil supercycle."

Oil markets have witnessed an impressive rally, surging nearly 30 percent since June. As the third quarter comes to a close, it is on track to register its most substantial quarterly gain since March 2022. Several factors have contributed to this remarkable uptrend, including substantial supply cuts from key OPEC+ members like Saudi Arabia and Russia. Additionally, optimistic economic outlooks in the world's two largest economies, the United States and China, have further fueled bullish sentiment. The soaring prices have also reignited discussions regarding the possibility of oil reaching the coveted $100-a-barrel mark, while simultaneously exerting pressure on import-dependent economies.

The physical oil market reflects a growing sense of tightness. Just last week, Russia announced a temporary ban on exports of diesel and gasoline, causing fuel prices to surge. Meanwhile, in the United States, crude stockpiles have continued to decline, underscoring the ongoing demand for oil. Furthermore, the oil market's time spreads have taken on a backward-dated structure, indicating fierce competition for near-term supplies.

Saudi Arabian Foreign Minister Faisal bin Farhan emphasised the role of the Organization of the Petroleum Exporting Countries (OPEC) and its allies in maintaining energy market stability. Speaking at the United Nations, he highlighted the commitment of these key oil-producing nations to curb supply when necessary, thereby contributing to the overall equilibrium of global energy markets.

As oil prices continue their upward trajectory, the global economy remains on high alert. While producers celebrate the resurgence in prices, import-dependent nations face increasing pressure as they grapple with rising energy costs. The oil market's trajectory in the coming weeks will likely hinge on the delicate balance between supply and demand, as well as the influence of geopolitical events on oil-producing nations. Investors and analysts will be closely watching for any developments that may impact this fragile equilibrium.

About Peter Milios

Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.

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