Money managers believe another bearish move could be forming around oil after weeks of gains. Doubts over oil producers reaching an agreement on output freeze continue to dent hopes of a further rally.
Oil Producers Stand Off
Iran has already made it clear it will not limit its supply until it restores its output to pre-sanction levels. The country now plans to boost its output to 4 million barrels a day, levels last seen in 2008. The remarks have not gone well with some producers, Saudi Arabia having said it will only agree to an output freeze if other producers agree to the same.
These sentiments continue to push prices lower in the market seen by Futures in West Texas Intermediate retreating for the first time in months last week. Prices have rallied from 13-year lows of $26 a barrel to highs of $40 a barrel in recent weeks. With the likes of Saudi Arabia, Russia, Venezuela, and Qatar engaged in an output freeze standoff, the gains are at risk.
Major producers will meet in Doha on April 17 to discuss the way forward on an agreement reached in January. Growing concerns over the outcome of the meeting continue to push prices lower.
Tim Evans, an energy analyst at Citi Futures, believes the meeting should not take place given the hard-line stance by many major producers.
“I don’t even know why they want to gather in a room to talk if the Saudis say they won’t freeze output unless Iran does, and we know the Iranians have no intention of cooperating,” said Mr. Evans.
Bets of a further drop in oil prices in West Texas Intermediate crude continue to increase. Short positions clocked four month highs having risen by 17% for the week ended March 29. Bullish wagers dropped by 3,647 contracts to 296,614.
Brian LaRose, technical strategist at United-ICAP in New Jersey, believes technical factors could also weigh in on prices in the coming weeks. Prices dropping below the $36.50 a barrel mark could signal a further downturn.