(Repeat column originally published on March 23, no changes. (John Kemp is a Reuters market analyst. It’s his own views)
* Chart book: tmsnrt.rs/31bLM56
LONDON, March 23 (Reuters) – Oil futures prices have fallen for the second time in two weeks, spraying some off-market frosts, which had been expected to lead to strong spending back to how people all over the world would get the vaccine.
Brent prices at the front month are trading around $ 62 per barrel, down more than $ 7.50 per barrel or 10% from the March 11 high. That is the sharpest drop from the first wave of the pandemic in April 2020.
For four months, prices had risen more than $ 32 per barrel or 86%, up from November with advances in coronavirus vaccines.
The latest slide came at a time of disease recovery and slow progress with vaccines in several countries, including much of Europe, threatening the resumption of international passenger air travel.
Looking back, the futures market was already looking too hot by the end of February and beginning of March, creating a perfect situation for a sharp retreat.
By the last trading day of February, monthly face prices had risen 30% in two months, a rate of increase in the 98th percentile for all similar periods since the beginning of 1993 (tmsnrt.rs/31bLM56).
Brent’s six-month calendar release had entered a reserve of more than $ 4.70 per barrel, also in the 98th percentile, indicating a market that was expected to be extremely tight.
Futures prices on the last few trading days before the end of the contract are often unrepresentative, so the full and scatter price on February 26 was rejected as a stop.
But by March 5, with a new and melting up contract on the front month, prices remained up 25% over two months, and the reserve was again above $ 4.20, both in the 96th percentile.
Futures prices were expecting a strong and early rise in demand, starting late in the second quarter and early in the third, as well as a continued production barrier by OPEC + and U.S. coal-mining companies.
However, with Brent prices trading above $ 65, the inflow of additional speculative money into the market had effectively stopped several weeks earlier.
Hedge funds and other cash managers effectively stopped buying crude futures and options contracts after Feb. 16, when month-on-month prices rose $ 63 for the first time in more than 13 months. months.
In the corporate market, Brent spreads began with a softening date of February 19, as the previous shortage of North Sea loads was unrelated, indicating that the corporate market was not the tightness of futures prices.
The decision on March 4 by OPEC + left yields unchanged in April, rather than picked up as expected by most market watchers, leading to a final price increase.
But with spot prices and spreads already looking stretched, and without new speculative buying, the ongoing price rally was running on fog and in jeopardy from any less bullish developments.
In this context, bad news about coronavirus diseases and the possible extension of international travel bans have proven enough to sharply reduce both spot prices and spreads.
The change seems to have been accelerated and compounded by the meltdown of portfolio managers and taking profits, just as the earlier rally was accelerated and augmented by their building.
Prices and spreads are now looking lower than at the beginning of the month.
As long as price per month remained above around $ 55 and the six-month release still reversed, the recent fall in prices is likely to be seen as a temporary pullback in a longer cycle rise. .
Related Columns:
– Oil prices plummet after assets stop buying (Reuters, March 22)
– Hedge funds remain bullish as OPEC + supports oil (Reuters, March 15)
– Hedge fund position in anticipation of peak oil prices (Reuters, March 8)
– Hedge funds sell oil like bull run stutters (Reuters, March 1)
– Buying assets in oil stalls after prices above $ 60 (Reuters, February 22) (Edited by David Gregorio)