Traders Don’t See OPEC+ Substantially Lifting Oil Prices
Portfolio managers continued to be bearish on crude oil prices ahead of the now-delayed OPEC+ meeting, further selling off Brent and WTI futures and options and halving the net bullish bet on oil in two months. The bearish positioning in crude oil in the past eight weeks suggests that hedge funds and other money managers are skeptical about OPEC+ managing to offset non-OPEC+ supply rising faster than expected, as well as concerns about economic growth. Some of the moves down in oil were also triggered by technical selling, while some hedge funds have stayed on the sidelines waiting for the next decision of the OPEC+ group. In the week to November 21, bullish bets were slashed – with net-long positions being cut by over 19,000 positions to the lowest since June, according to data from the ICE Futures Europe exchange and the CFTC. The latest Commitment of Traders (COT) report was released on Monday, delayed due to Thanksgiving last week. “Unsurprisingly, given the weakness seen in the market, speculators continued to reduce their net long in ICE Brent over the last reporting week,” ING strategists Warren Patterson and Ewa Manthey said on Tuesday. The net long position – the difference between bullish and bearish bets – in Brent Crude futures slumped by 15,880 lots to 155,105 lots as of November 21—the smallest net-long position since early October. Most of the sell-off was due to the liquidation of long positions. In NYMEX WTI Crude, portfolio managers cut their net long by 19,751 lots over the last reporting week to 104,545 lots. This was the smallest bullish position since July, ING’s analysts noted. “While longs are liquidating as sentiment in the market sours, there is also likely an element of speculators taking risk off the table ahead of the OPEC+ meeting,” they said. Amid record-high U.S. crude oil production, money managers have been selling WTI futures for eight consecutive weeks, reducing their position by the equivalent of 216 million barrels since the end of September, according to data compiled by Reuters market analyst John Kemp. The combined net long in WTI and Brent has seen eight weeks of selling apart from a geopolitics-driven bid higher in the week of October 17, after the Hamas attack on Israel, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said, commenting on the latest report on traders’ positioning. During those eight weeks, the combined net long in WTI and Brent has more than halved to 260,000 lots, driven by 188,000 lots of long liquidation and 112,000 lots of fresh short selling, Hansen added. Traders are now expecting the next move from OPEC+, which is set to hold a virtual meeting on Thursday, November 30, if the group doesn’t delay it again, as some reports suggested on Tuesday. A rollover of the current cuts is the likely scenario, according to OPEC+ sources who have spoken to Reuters. The alliance is said to be continuing talks with African producers about their quotas, but no agreement has been reached as of late Tuesday. If the current cuts are only extended, they could erase most of the surplus on the market expected early next year, ING’s analysts said. “However, if OPEC+ want to provide more solid support to the market and ensure that we do not see stocks building early next year, they will need to agree on deeper and broader cuts,” they added. “The Saudis and OPEC+ have made a habit of surprising markets in recent years when it comes to their meetings. However, with aggressive cuts already in place, it does leave one wondering the degree to which the group could surprise the market with deeper-than-expected cuts.”
India becomes the 2nd largest supplier of refined oil to Europe, thanks to cheap Russian crude
India has become the European Union’s second-largest supplier of refined petroleum products in 2023, despite relying almost fully on imported crude, thanks to the availability of cheap Russian oil imports. Since Russia’s invasion of Ukraine and the imposition of several trade sanctions on Moscow, Saudi Arabia has been the largest supplier of refined petroleum products to Europe. According to reports, the European Union imported a cumulative 7.9 million tonnes of refined petroleum products from India between January and September of this year. This figure is more than double the amount on a yearly basis and triple the volumes from the same period in 2021. India’s refined petroleum products volume for this year catapulted it from sixth place in 2022 to first place in 2023. France, the Netherlands, and Italy emerged as the three biggest importers, followed by Croatia, Latvia, Romania, and Germany. India holds the position of the second-largest oil refiner in Asia after China. The country imports around 40 percent of the crude oil it refines from Russia, with volumes increasing exponentially due to a discount on Russian crude oil amidst Western sanctions. Interestingly, Russian crude continues to make its way into European markets indirectly via alternative channels. The Centre for Research on Energy and Clean Air (CREA), Bulgaria’s Black Sea, Neftochim Burgas refinery imported over 4.95 million tonnes of Russian crude between January and October 2023. Bulgaria was granted an exemption from the EU’s Russian oil embargo implemented in late 2022 in order to ensure sufficient domestic supply. However, Russian oil is being supplied to the European markets via India (refined oil) and crude through smaller countries in Europe. CREA finds Bulgaria as the fourth-largest imported of Russian seaborne crude, after India, China, and Turkey. It is worth mentioning here that Western countries led by the United States of America and the European Union imposed economic and other trade sanctions on Russia after its offensive in Ukraine in February 2022. Diesel exports Europe suspended most oil shipments from Russia almost a year ago, but continued to buy diesel that may well have been made from Russian crude oil. The region’s imports of diesel from India, one of the largest importers of Russian crude oil, are on course to soar to 305,000 barrels per day (bpd), the highest since at least January 2017, data compiled by the market intelligence agency Kpler showed. Since India imports crude oil from other countries such as Saudi Arabia, Iraq, Iran, and a number of other countries, it cannot be accurately said that New Delhi’s diesel exports to Europe is made of Russian crude. However, given that the volume of exports increasing significantly, one can easily assume that the diesel being exported to Europe is made of Russian crude. Meanwhile, increasing Moscow’s crude deliveries has given Indian refineries the ability to produce abundant diesel and boost exports. Arrivals into Europe in November include a rare shipment from Mumbai-based Nayara Energy Ltd, which imported almost 60 percent of its crude oil from Russia this year. Reliance Industries Ltd, Europe’s leading supplier of Indian diesel, draws more than a third of its crude oil from Russia, Kpler reported. This is considered Europe’s fundamental shift towards India after Russia’s invasion of Ukraine. The European Union banned most seaborne imports from Russian crude oil in December and oil products in February.