Oil prices have been facing persistent downward pressure, continuing their post-OPEC+ slide and approaching multi-week lows, despite the recent Saudi oil production cut. The announcement of a one million barrels per day reduction on June 4 initially sparked a sharp increase in oil prices. However, the gains proved short-lived as oil quickly gave up its momentum. Presently, oil is edging closer to the lows last seen in late March, with growing concerns over a potential recession in the United States amplifying the bearish sentiment. Moreover, the anticipated robust growth in Chinese economic activity is yet to materialize, further exacerbating the downward pressure on oil prices.
Recession Fears and US Government Bond Sales Keep Oil Prices in Check
While macro-events and economic data releases will be closely monitored throughout the week, the spotlight remains on two critical central bank monetary policy decisions – the Federal Open Market Committee (FOMC) and the European Central Bank (ECB). These decisions, along with the latest insights into US price pressures, will play a significant role in shaping market dynamics. Oil traders eagerly await these developments, as they seek clues about the future trajectory of oil prices.
Amidst the prevailing market uncertainties, the US government is poised to sell over $200 billion of a mix of bills, notes, and bonds as it seeks to replenish its current account. While a substantial portion of this will be financed by maturing paper, a significant influx of new funds will be required to cover the upcoming sales. The anticipation of this event has been pushing US yields higher, which in turn exerts downward pressure on oil prices, as investors find more attractive options in the bond market.
Adding to the negative sentiment, investment banking giant Goldman Sachs recently revised its forecast for Brent crude from $95 per barrel to $86 per barrel. This downward revision reflects the prevailing market conditions and the continued downward trajectory of oil prices. At the start of the year, Goldman Sachs had initially predicted oil prices to reach $100 per barrel. The downward adjustment highlights the challenges faced by the oil market and the downward pressure exerted by various factors.
Presently, Brent crude is trading around 2.5% lower in the session and is within a few percentage points of reaching a new multi-week low. The Commodity Channel Index (CCI) indicator reveals that oil is currently in oversold territory, indicating the potential for a short-term rebound. However, all three moving averages are aligned in a bearish pattern, suggesting a cautious approach. Unless there is a significant shift in sentiment, there is a real possibility that recent lows at $71.40 per barrel and $70.17 per barrel could face additional downward pressure.
In the retail trading sphere, data reveals that 85.78% of traders are currently net-long US Crude Oil, with a long-to-short ratio of 6.03 to 1. The number of traders with a net-long position has increased by 6.36% since yesterday and by 8.56% compared to last week. Conversely, the number of traders with a net-short position has decreased by 3.12% since yesterday and by 24.87% compared to last week.
Contrary to the prevailing sentiment among retail traders, a contrarian view suggests that the continued increase in net-long positions could potentially lead to further declines in Oil- US Crude prices. The persistence of net-long positions, coupled with recent changes in sentiment, reinforces a stronger bearish contrarian trading bias for Oil – US Crude. It is essential to closely monitor the dynamics between market sentiment and actual market movements, as these dynamics can often deviate from each other.
In summary, oil prices continue to experience persistent downward pressure, despite the recent Saudi production cut. Recession fears in the US and the ongoing US government bond sales have hindered the stabilization of oil prices. Brent crude is nearing multi-week lows, indicating the prevailing bearish sentiment in the market. As traders take a net-long stance, the contrarian view suggests a potential further decline in oil prices. Market participants will closely monitor key economic events and data releases, while keeping a keen eye on the evolving dynamics of the oil market. Understanding the interplay between market sentiment and market movements will be crucial in navigating the current challenging environment.