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* Financial markets have poured cash into crude oil futures
* But physical oil traders caution of ongoing supply
* Global oil supply and demand balance: tmsnrt.rs/2dKkcHe
* Brent long vs short positions: tmsnrt.rs/2dXUsSL
By Henning Gloystein
SINGAPORE, Oct 12 Investors may have driven
crude oil futures prices above $50 a barrel and amassed large
bullish positions in expectations of further gains to come but
their optimism isn't shared by the people who produce, refine,
ship or trade the real stuff on a daily basis.
They inhabit a very different world in which there is plenty
of oil sloshing around and buyers can get cargoes of crude at
discounts to their official selling prices. Neither do they see
much of animpact anytime soon from plans by members of the
Organization of the Petroleum Exporting Countries (OPEC) to cut
production from record highs PRODN-TOTAL as they seek to rein
in two years of oversupply.
Ian Taylor, chief executive of commodities trading giant
Vitol, told Reuters this week that there is more physical crude
around than the futures prices are indicating.
Global oil production has outpaced consumption since at
least early 2015, with the current mismatch at about half a
million barrels every day, according to data on Thomson Reuters'
Jeffrey Halley, senior analyst at brokerage OANDA warned
that while the financial markets were becoming more confident,
"the reality is the world is pumping a lot more oil than it
Consequently, crude futures are trading at premiums to their
underlying physical grades. Brent futures are currently
at a premium of about $2 a barrel to the main physical cargoes
that underpin those contracts.
And in a further sign of a well-supplied market, Middle East
crudes from the United Arab Emirates and Qatar last month traded
in the spot market at discounts of as much as 25 cents a barrel
to their official selling prices.
Market data shows that just as financial traders have
amassed long positions, producers have built up large short
positions in the crude futures market. That helps them to hedge
against any possible plunge in the prices of the crude they
Some in the financial markets are taking notice.
Goldman Sachs told clients this week that despite a
production cut becoming a "greater possibility", markets were
unlikely to rebalance in 2017, warning of another price fall to
the low $40s per barrel. That would be a repeat of 2015 when
financial markets pushed up prices just to slump back amid the
Many investors, though, are betting on the days of
oversupply ending within a few months. They are supported by
energy economists and strategists at some of the other banks.
"The oil market is irrevocably gravitating towards
equilibrium, leading to higher prices," said Hans van Cleef,
senior energy economist at Dutch bank ABN Amro in a note to
clients this week.
A collapse in the gold to oil price ratio supports
the bullish sentiment.
The ratio between these two key commodities has plunged from
40 to below 25, and the head of oil research at Japan's Nomura
bank, Gordon Kwan, said this implied either higher oil or lower
gold going forward.
"One reason the gold/oil ratio spikes around periods of
financial crisis is because oil prices tend to fall when
economic growth is weak and investors are worried, while gold
thrives in that environment," he added.
"Assuming gold stabilises at $1,250, if the gold/oil ratio
hits 20x, this implies oil price could rise above $60 per
barrel, consistent with our 2017 Brent crude average forecast,"
Morgan Stanley said this week that it expected Brent prices
to rise from an average of $42 per barrel this year to $51 in
2017 and to $70 on average for 2018.
But, while the focus is on OPEC's proposed cut, with Russia
possibly joining, others warn output is creeping up elsewhere.
Eikon data shows that the amount of U.S. rigs drilling for
new production has steadily increased since May RIG-USA-BHI.
"Productivity has surprised on the upside... and with the
rig count slowly climbing upwards one can be cautiously
optimistic that the U.S. shale industry is gearing up for a
recovery," said Ted Young, chief financial officer of Dorian
LPG, one of the world's biggest shippers of liquefied petroleum
(Reporting by Henning Gloystein; Additional reporting by Amanda
Cooper and Dmitry Zhdannikov in LONDON; Editing by Christian
Schmollinger and Martin Howell)