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James Hyerczyk
WTI and Brent Crude Oil

Nearly a month into its OPEC-led production cuts, Russian officials are already considering a possible extension of the current level of cuts beyond June. Meanwhile, there is evidence that the current rally isn’t being driven by only short-covering. New data indicates hedge funds continued to accumulate bullish positions in WTI crude oil.

Russian Minister, Oil Majors Discuss Output Cut Extension:  Sources

Russian Energy Minister Alexander Novak met with domestic major oil companies on Tuesday to discuss the implementation of global oil production curbs and the possible extension of the current level of cuts beyond June, sources familiar with the plans told Reuters.

The meeting is a further sign that Moscow is committed to supporting any future joint steps to stabilize oil markets for as long as may be required, after slashing its production to close to its quota under the global deal, Reuters said.

A source, familiar with the meeting detail, said no decision was made.

“Novak has just asked for opinions, whether to extend (the deal) or not. The opinions were divided almost equally,” the source said.

He added that it was decided to analyze the market, wait for demand to improve when the planes, grounded due to the coronavirus-combat measures, start to fly again.

Kommersant daily, citing three sources in oil industry, said Russia may keep the current level of cuts until September.

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Hedge Funds Build Large Bullish Position in WTI

Hedge funds and other money managers continued to accumulate bullish positions in crude oil and its products last week but almost all buying remains concentrated in WTI, with little evidence of optimism in other futures contracts, Reuters said.

Portfolio managers purchased the equivalent of 30 million barrels in the six most important futures and options contracts in the week to May 19, exchange and regulatory data showed.

Fund managers have been net buyers in seven out of the past eight weeks, increasing their position by 292 million barrels since March 24.

WTI purchases totaling 216 million barrels have accounted for almost three quarters of all buying in the six major contracts since March 24. As a result, funds now hold a net position of 380 million barrels in NYMEX and ICE WTI, compared with only 158 million barrels in Brent.

After the lopsided buying, funds hold eight bullish long contracts for every short one in WTI, compared with ratios of only 2:1 in Brent, 3:1 in gasoline, 0.7:1 in heating oil and 1.3:1 in gasoil.

Daily Forecast

Russia looking to extend the production cut deal and hedge funds aggressively buying WTI crude oil are strong signs that the current one month rally is legitimate. Although we may see periodic setbacks, the news suggests that traders will likely be available to buy on the dips.

The current fundamentals are supportive, but bullish traders should stay on their toes just in case a second wave of coronavirus infections hits.

For a look at all of today’s economic events, check out our economic calendar.
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