Oil prices have pushed through to new 3.5 year highs as concerns over threats to global oil production are outweighing a stronger dollar and growing US output.
Venezuela & Iran are getting most of the blame for today’s run-up. A weekend report from the former Venezuelan oil minister (now in exile somewhere in Europe) suggested the country’s oil output my continue to decline by more than ½ million barrels/day this year, offsetting production gains in the US.
There are 5 days left until the deadline for the US to decide to stay in the Iranian nuclear agreement. The tough stance taken by the new US Secretary of State and strong language from Iran last week seem to have the market pricing in new sanctions being levied that could take another 300,000-400,000 barrels/day of Iranian production offline.
9 more oil rigs were put to work last week according to Baker Hughes’ weekly report. This marks the 5th straight week of increases in the rig count – which reached a fresh 3 year high – with New Mexico leading the increase with 6 new rigs put to work last week.
Money managers (aka hedge funds) are taking some chips off of the table with net long positions in WTI dropping for a 2nd straight week, and declining in Brent for a 3rd. Although the total amount of speculative funds has shrunk recently, it remains well above any previous year, so the declines look more like profit taking than any sort of mass liquidation.
Managed net length in refined products increased for a 3rd straight week, with RBOB positions hitting a record high. The net short position held by swap dealers shrunk modestly on the week, but remains near all-time lows in a sign that US Producers are actively hedging their future output.