Traders Betting on End of Oil Price Dip

Traders Betting on End of Oil Price Dip
Rigzone's regular market watchers focus on oil price trends, the technical declaration of a U.S. recession, U.S. gasoline demand moves and more.

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)

In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers focus on oil price trends, the technical declaration of a U.S. recession, U.S. gasoline demand moves and more. Read on for more detail.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

John Stilwell, Principal, Grant Thornton LLP: The prior four-week indicators show that traders are continuing to bet on the end of the oil price dip. Money managers have started to close out short positions, while the disconnect between the physical and paper crude market is significant. This trading trend suggests that speculators, traders, and hedge fund managers are looking towards a rebound of the 20 percent crash in oil prices since the middle of June. The Russian invasion of Ukraine, global sanctions on Russian oil and the fears of aggressive interest rates have impacted a strong first half of the year.  Uncertainty and volatility are high, and trading volumes are low in the summer, magnifying the moves up and down for oil stocks. Despite these macro level impacts to the market, the latest trade moves in crude and oil focused funds suggest that speculators expect oil has reached the bottom of the price move that began in June.

Barani Krishnan, Senior Commodities Analyst at The technical declaration of a U.S. recession after the GDP decline in the second quarter wasn’t as surprising to the oil market as the discovery that energy prices weren’t exactly price-proof.

Rigzone: What were some market surprises?

Stilwell: Aside from the near-term micro impact factors on the market, the general market surprise flies in the face of the prediction made by many analysts in recent months that U.S. gasoline demand would stay robust in the face of high prices and reach all time highs based on pent up demand. In July, U.S. gasoline demand readings are extremely poor. While there has been an overall weakening trend in demand, July readings have been significantly low within the weakening trend, lower than July 2020 during the pandemic. The overall market status remains volatile, but there is reason to be optimistic that pump prices will fall in the near term without an additional macro impact.

Krishnan: Two back-to-back weekly gasoline builds totaling about 11 million barrels - for the weeks ended July 8th and July 15th - was a wakening call to an oil market that was so presumptuous about demand that many thought gas at even $10 a gallon at the pump would be kosher to the average American. The gasoline inventory build - the worst of its kind since January - was the most serious indication yet of what demand destruction could be at gas prices north of $4 a gallon (they went to a record high of $5 in mid-June). The revelation was sobering enough that the decline of more than 3 million barrels in gasoline stockpiles for the subsequent week to July 22nd was greeted with much restrained fanfare.

Not surprisingly, Thursday’s announcement by the Commerce Department that U.S. GDP declined 0.9 percent in the second quarter after a 1.6 percent drop in Q1 had a more pronounced impact on oil bulls than it did with the long crowd on Wall Street, who pushed tech and other stocks higher for a second day in a row. 

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