Oil Prices Surge: Fed, CTAs, and Record Shorts Drive Rally
Oil Prices Surge, Supported by Fed, CTAs, and Record Shorts
Oil Price Increase
Oil has seen an increase of over $6 from its lowest point last week, with the most recent rise being aided by the risk-on tone across global markets.
Volatility in Crude Prices
As reported by Alex Longley of Bloomberg, the current rally is the latest in a series of substantial intraday price fluctuations for crude. The average daily swings in August and September were the highest since the beginning of the year.
Money Managers and Brent Crude
In this context, money managers had positioned themselves net short in Brent crude for the first time ever. However, with the Federal Reserve's interest rate cuts easing concerns in financial markets, oil prices were primed for a rally.
Potential for Further Gains
There might be more gains on the horizon. As illustrated in the charts provided by Goldman, we are quickly nearing levels where significant Commodity Trading Advisor (CTA) buying could emerge.
Continued Disruption in Libya
There is also ongoing disruption in Libya, where production remains well below a million barrels per day. Additionally, the storage hub of Cushing, where US crude futures are priced, is at extremely low levels.
Oil Prices Could Overshoot
Longley concludes by stating that, given the tendency of oil prices to regularly overshoot in either direction, it wouldn't be surprising to see this recovery rally gain momentum.
Bottom Line
The recent surge in oil prices, fueled by the Federal Reserve's interest rate cuts and record shorts, suggests that the oil market may be on the brink of a significant rally. This situation is further compounded by disruptions in Libya's output and low levels at the Cushing storage hub. Given these circumstances, it wouldn't be surprising to see this recovery rally gain momentum. What are your thoughts on this development in the oil market? Share this article with your friends and let us know your views. Remember, you can sign up for the Daily Briefing, which is available every day at 6pm.
