- Investors have ramped up short bets on the price of Brent and WTI crude oil.
- The bearish bets largely stem from Saudi Arabia’s recent price cuts on its flagship crude product.
- Traders are also eyeing funds poised to sell around $2 billion of crude futures contracts this week.
Energy traders are piling into oil short bets on the price of oil as Saudi Arabia slashes prices on its flagship crude markets expect commodity funds will soon sell billions worth of US oil futures contracts.
Short positions in Brent crude and West Texas Intermediate crude rose 61,000 the last week, according to data from the Intercontinental Exchange and the Commodities Futures Trading Commission. That’s the largest increase in short positions since March of last year, Bloomberg reported on Monday.
The big rise in bets that prices will fall largely stems from Saudi Arabia’s price cuts for its flagship crude product – a rare move from the de facto OPEC+ leader, which also cut production aggressively last year in a bid to boost prices.
Saudi Aramco, Saudi Arabia’s state-run oil giant, cut the February official selling price of its Arab Light Crude on Sunday to its cheapest level in over two years for its Asian customers.
Meanwhile, major commodities funds look poised to start selling US crude futures contracts to rebalance as the new year gets underway, which has also sparked a jump in bets that oil prices could fall. Commodities funds that track the Bloomberg Commodity Index and the S&P GSCI could sell around $2 billion worth of futures contracts this week, according to a Citigroup estimate seen by Bloomberg.
Saudi Arabia’s recent price cut could be a sign that the kingdom sees lower crude demand, or is potentially trying to counter the West’s booming crude production by waging a “market share war,” some energy analysts say.
Oil prices dropped over 3% on Monday as markets digested the latest headwinds. Brent, the international benchmark, fell to trade around $76 a barrel, while West Texas Intermediate crude fell at trade around $71 a barrel.