Oil prices remain under pressure this morning after settling 1.3% lower on Friday. Confusion over OPEC+ supply cuts appears to have put pressure on oil prices. There were reports over the weekend that Iraq’s oil minister said that the country would not agree to further supply cuts, and it is not clear whether this refers to a rollover of existing cuts or deeper cuts. However, the minister later said that an extension to supply cuts would be a decision for OPEC. Iraq has fallen short of its additional voluntary cuts since the beginning of the year and so the willingness and ability for Iraq to cut more is likely limited. There will likely be increased noise in the lead-up to the next Joint Ministerial Monitoring Committee (JMMC) meeting scheduled for 1 June.
The pressure on oil prices comes despite a growing supply risk from the oil sands region of Canada. An evacuation alert was issued for Fort McMurray, Alberta, due to wildfires near the town. In 2016, wildfires in the region saw residents evacuating the town and more than 1m b/d of oil production shut-in.
Speculators reduced their net long in ICE Brent significantly over the last reporting week, Speculators sold 60,125 lots to leave them with a net long of 260,648 lots as of last Tuesday, a move which was predominantly driven by longs liquidating. NYMEX WTI also saw a large amount of selling. Speculators cut their net long by 55,038 lots to 117,651 lots, the smallest position held since February. ICE Gasoil also saw a large amount of speculative selling over the week, as the market becomes more bearish towards middle distillates. Money managers reduced their net long in gasoil by 16,662 lots to 32,914 lots, the smallest position held since January.
It is a fairly busy week for the energy calendar. OPEC will release its latest monthly oil report on Tuesday, the last release before the JMMC meeting in early June. This will be followed by Wednesday’s International Energy Agency’s (IEA) monthly oil market report. Friday will see China release industrial output data for April, including crude oil output and refinery activity. However, US CPI data for April will probably be the biggest driver for oil markets on Wednesday. This data will likely shed more light on the path the US Federal Reserve may take in the months ahead.
