July 5, 2023 [Bloomberg]- Oil edged lower, erasing short-lived gains stemming from Saudi Arabia’s pledge to extend its voluntary output cuts by another month.
West Texas Intermediate settled below $70 a barrel in a low-volume session, slipping after data showed US factory activity shrunk by the most in three years. Oil traded higher overnight after Riyadh said its already slashing an additional 1 million barrels a day of supply, and will continue that reduction into August. Shortly afterward, Moscow announced a 500,000-barrel-a-day cut to crude exports next month.
The twin moves are part of a wider effort by major oil producers to prop up prices. So far this year they’ve had little success, with benchmark Brent down by about 11% as China’s recovery sputters, traders fear a potential recession in the US, and robust exports from Russia and Iran swell supplies.
Monday’s announcements are also likely to whipsaw some of the market’s speculative positioning. Last week, hedge funds and other money managers had the biggest number of outright bearish bets in West Texas Intermediate since 2017, according to CFTC data.
The cuts “should help to break the speculative shorts,” said Paul Horsnell, head of commodities research at Standard Chartered Plc. With current positioning extremely short, “a significant portion of it might be expected to bow out in the face of these producer moves.”
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