Oil sailed over $73 briefly today, and settled at $72.68. The reason for today’s rise is that the IEA’s outlook was less negative. We don’t want to rain on anyone’s parade, and we’re sure everyone read the IEA report carefully this morning, but the fact is that the IEA still sees oil demand falling in a big way year over year.
And while we poked fun at Bernie Sanders yesterday for raising the spectre of speculation driving the price of oil up, it’s becoming a hot topic in the oil market. Here’s the IEA’s take on the subject:
Both the OMR and MTOMR have long argued that market fundamentals remain the key driver of crude prices. A 20%‐plus rise in prices during May and into early June looks difficult to justify from fundamental factors alone, even though refinery throughputs are trending higher, while OPEC curbs remain in place and gasoline markets begin to tighten. But saying that fundamentals are the key driver is different from inferring they are the only driver. Prospects for equity markets and the global economy, backed up by exchange rate fluctuations, expectations about future oil market tightness and, by inference, a shift of money into or out of futures markets can all influence short‐term prices, as we have noted before. Indeed, it is tempting to conclude that the shift in NYMEX WTI non‐commercial positions from a net 11,000 short in early May to 40,000 net long a month later is sufficient explanation for the surge in prices. The problem is that the relationship falls apart over longer periods, and also that total open interest on the NYMEX has been range‐bound this year at well below spring 2008 highs. So if an ‘it’s only fundamentals’ argument strains credibility, so too does the idea of a single ‘speculative’ smoking gun underpinning higher prices, although recent regulatory moves to improve financial market oversight are welcome.
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